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Twilio S-1 (sec.gov)
375 points by kressaty on May 26, 2016 | hide | past | favorite | 211 comments

There's a lot there not to like:

    Revenue: $166,919,000
    Net Loss: $38,896,000
So they're still not profitable. This is surprising, since they don't have any big capital investments. They're not doing anything that takes a lot of R&D. The thing runs on Amazon AWS. They've been operating for years and should be profitable by now. Yes, they're growing fast, but the costs don't rise in advance of the growth. You don't have to prepay Amazon for AWS.

"Each share of Class A common stock is entitled to one vote. Each share of Class B common stock is entitled to 10 votes and is convertible at any time into one share of Class A common stock."

So the public stockholders have no power. The insiders can't be fired. Google and Facebook did that, but they were big successes before the IPO. It's unusual to try to pull that off when you're unprofitable. The NYSE, on which they want to list, didn't allow multiple classes of stock until 1986.

WhatsApp is only 15% of their revenue, so that's not a big problem.

Twilio's big thing is telephony integration. They have a SS7 gateway and can integrate Internet and telephony. If Amazon or Google offered that, Twilio would have a big problem. Google has Google Voice and Google Hangouts, but doesn't offer telephony integration via a usable API. Yet.

This IPO is an exit for their VCs. They were all the way up to a series E round, and since they grew fast by losing money, the early investors had to pour in a lot of cash.

Twilio went from $33m to $59 Q1 '15 to Q1 '16. That's huge growth - and is a lot to like.

Virtually every company that is growing at 80% YoY runs unprofitably.

Here's why: compounding. They're growing 80% YoY because of that spend and it's absolutely worth it.

Say they could run break even at 50% YoY growth. Straight line that growth through 2019 and you have a company doing just shy of $800m in annual revenue. Invest $40m extra a year for 80% growth (admittedly very simplified!), and you have a company doing $1.4B per year.

Growth costs money up front: it's marketing, it's customer acquisition, it's hiring and scaling so you're ready to do nearly double the volume next year and it's opening new lines of business.

You'd be nuts not to spend some extra cash when a) unit economics are good and b) you can turn it into significantly more cash in 12-24 months.

Twilio could run profitably tomorrow at the cost of hundreds of millions in revenue and potential profit 3, 4 and 5 years out.

Disclaimer: Jeff Lawson is a CEO I greatly admire.

There was a great article that gets posted here often about how it's ok to be unprofitable if you have high growth, and it's ok to have low growth if you have high profits. Anyone have a link?

Edit: found it. http://avc.com/2015/02/the-40-rule/

Net loss: Don't think that is a biggie. They expanded their cost base both in R&D, sales & marketing, and general and admin. With a little bit of cost discipline for one year, they are going to be profitable.

Voting rights: that is indeed yucky.

Competitive threat: Not really. The inertia for existing customers is high, especially since the average revenue per active account is about $580/month. For a big company, that is not worth optimizing. And switching to another (unproven) API from a running system... not likely.

A list of their competitors: https://www.quora.com/Who-are-Twilios-competitors.

As a Twilio customer that spends maybe ~$500 /mo i'll look at any alternative that allows me to send meta data or allows some process to have a foreign key allowing me to persist conversations in a sane manner (and I'm currently researching just that).

Twilio also does not have their own network, so competitors like Bandwidth that have their own network will be able to compete on price. That said current Twilio pricing is not prohibitive in our market and thus isn't a factor for us researching alternatives currently.

Twilio is a Bandwidth customer.

Bandwidth launched a competitive product over two years ago: https://catapult.inetwork.com/pages/home.jsf

The fact that no one here has mentioned it is telling.

Also many of the SMS and MMS companies sign contracts for X messages per month with the telecom companies. If they have a slow month where they can't fulfill the obligations of the contract they'll resell their remaining capacity to another company in the space.

I suggest that you look at Tropo (https://www.tropo.com/). They provide the option to run your script on their servers. I find it's much easier to program non-trivial conversations that way.

>a little bit of cost discipline for one year

So, layoffs?

Or just continued growth without adding headcount.

> This is surprising, since they don't have any big capital investments.

I haven't looked at the S-1 and I'm not sure if they even break this out, but user acquisition costs are all paid up front, while the value is realised over the life of the customer, depending on the average lifetime of a customer, this could be fine, if risky. And you often do prepay for AWS since it saves you money over the course of a few years.

> And you often do prepay for AWS since it saves you money over the course of a few years.

I don't think this would show up as an expense. It would just shift assets from cash to prepaid expenses, and not show up on the P&L - until the expenses are realized, which would be over time.

Sales & marketing is 49 million, R&D is 42 million. So, I guess the critical factor is the degree of user turnover. If they lose users too quickly, they need to keep spending big on sales & marketing. It doesn't seem like the sort of market where people jump ship quickly though, since once you've added the piece of code that integrates with their services, you'd only replace it if the other api is a lot cheaper or somehow more capable / reliable.

Right but how expensive is that acquisition cost? So its about the average cost to acquire versus the average lifetime customer value. I think that's an important metric for them to break out

Let's play the devil's advocate for a second.

                       FY13     FY14     FY15 
  Sales and marketing: 21,931	33,322	 49,308	 
Just turn it off and now you have a $11M profit. NetSuite and SuccessFactors did it in 2008 and they're both profitable, or at least were in NetSuite's case (NetSuite has recently pushed hard on S&M, hence a decline in profit in the last few years, probably because the market is dictating to do so and money is cheap).

EDIT: Grammar.

I think this is a smart move and a good observation. Specifically with respect to Twilio, because I already know about their services. Having needed this kind of integration as a business need previously, I am aware of what services they are offering. What I'm saying is that I don't think this is a discovery problem for Twilio. All of their marketing and sales efforts seem to be focused on asking me to get to know Twilio's services better. But I already know what they offer (I just don't want to buy a short code). I'm pretty sure most other people shopping for this kind of integration are in the same boat (already aware of what Twilio is selling). Spending money to make sure people know what Twilio is selling seems redundant to me. Just for one point on the graph.

I'd be surprised if they are targeting just developers and people knowledgeable about the tech.

A lot of that is probably focused on reaching PHB's in enterprises who don't know what Twilio is or why they should care until a sales person takes them to an expensive lunch to explain it.

Just want to note that yes, cost can rise in advance of growth. Whether or not that's "OK" depends on the unit economics.

Frankly, I share your skepticism. I think you hit the nail on the head - Twilio has few, if any moats, that can't be crossed by large competitors like Google or Amazon.

And if I'm Bezos and Twilio is making all this money off the back of AWS, why not just cut out Twilio? Heck, Amazon is doing that to friggin vitamin makers, why not do it to tech companies?

> Twilio has few, if any moats, that can't be crossed by large competitors like Google or Amazon

Here's one moat - with GOOG's annual revenue of $75 billion or AMZN's $107 billion how likely are either to chase an opportunity that, assuming perfect execution, complete market share grab and ultimate destruction of Twilio, will add $167 million of annual revenue to their balance sheet?

From the corporate politics standpoint this would be a hard project to pursue internally, as anything under a billion is unlikely to register on CEO's radar.

From the customer standpoint, chances of getting competent and prioritized support might be better with Twilio, where the telephony API is their primary product, versus Google, where it might be 108th project on the priority list.

This feels very much like something Amazon might pursue, although probably in a more piecemeal manner. AWS already has a lot of the components that would be needed for a Twilio competitor in the form of SQS, SNS, and Lambda - all they really need is the ability to receive incoming text messages and voice support to be competitive. A lot of people would jump on that just stay within AWS rather than add another provider to deal with.

I agree there are some fundamental building blocks they might pursue. There's already a parallel story to follow - SES and Mailchimp/Mailgun/Sendgrid. Competitive at the basic level, with Amazon actually validating the market and sending the clients off when they're ready to go beyond "simple".

Their large clientele is all sorts of spamming services. I receive tons of messages daily (currently ATT but Sprint before) for different type of products and services, mostly work by completing surveys. Everytime I trace number down - its Twilio. And their spam complaint team never answer to my complains, so unfortunately as long as spammers can use their services, they will be making money.

On the good side, I use their services anytime I need to "confirm my identity through a text message".

I think its impossible to determine whether a cellphone is a real number or Twilio number so it always works! I have a cash prepaid Visa card that I can purchase a Twilio number for $1 and have a text message with confirmation code come to my throwaway email address. Well worth a dollar for almost complete anonymity!!

It's not impossible. It's quite easy in fact to determine if a number is a real cell phone or not by doing an NPAC lookup to see if LNP is applicable (if so, you just check the service provider type, if not, a simple check of the NANPA allocation would do). Lots of companies provide it as a service. Just most places don't check and blindly try to deliver to whatever number you provided.

I don't understand this. Is it a land-grab focus?

Why do so many software companies focus solely on growth? A traditional business with $166 million in revenue is huge. Why are investors not asking for a return on their investments already?

Don't investors usually look for a return on their investments within 2-3 years?

Return can be two things: profit now or future profit.

A traditional business with $166m in revenue has few places to invest extra cash that turn $1 into $4 in < 24 months. Twilio has this.

What would be crazy is not investing in growth.

>Don't investors usually look for a return on their investments within 2-3 years?


I am a Twilio API customer. It definitely is a land rush. I am far less likely to switch to its competitors as my integration with their systems grows deeper. There is a finite number of large enough companies that would materially affect Twilio's revenue. 166million at $0.015/minute is not that much of business compared to what they are aiming for, which is global domination of computer-controlled telecommunications.

The stock price is a result of many factors, future profit and growth is a big part of it. Having a good long term outlook is better than slashing everything for the short term.

Personally, I'll stick to a rule I found very valuable with the first dot-com bubble: don't touch a stock until the company has had 4 quarters of profitability. Simple rule. Amazing how companies these days never pass that filter.

So you don't touch any growing company until they plateau? Doesn't that defeat the whole point of buying stock?

What makes you think that a company would plateau after 1 year of profitability?

I don't think Google is much of a threat, they seem to hate Gvoice internally having had several opportunities to make it a platform and passing (yes they used to have voice APIs on code.google.com). Bottom line, I don't think Google gets it (kind of like Facebook and web search)

And since the Unicorn Feeding stations have all been shut down :-) unprofitable companies of this size have three choices, IPO, die quickly, or try to shrink into a profitable chunk and bootstrap slowly into larger growth. I commend them for the IPO route, I expect to see more companies in this spot. This path also gives employees some liquidity but if they did a big reverse split prior to the S-1 its possible the employees will have underwater options at the IPO, anyone working there care to comment on that?

Re the options, the S-1 says: "As of March 31, 2016, we had outstanding options to purchase an aggregate of 16,704,752 shares of our Class B common stock, with a weighted-average exercise price of approximately $5.57 per share, under our equity compensation plans. After March 31, 2016, we issued options to purchase an aggregate of 671,550 shares of our Class B common stock, with a weighted-average exercise price of $10.30 per share, under our 2008 Plan."

Assuming they're going to IPO at more than $10 per share (which is usual) and that the option strike price has not gone down (so all the options issued prior to 3/31/16 were at a strike less than $10.30 per share) it looks like almost all the options would be in the money to some extent.

Given the way you laid out those scenarios, would you agree then that the goal then of IPO is finding a greater fool on Main Street and passing the buck while they can?

Is there anything here that indicates that the cash infusion from an IPO would get them on the track to profitability?

Yes, in general the bargain is that in exchange for accepting some additional constraints on behavior and a required level of transparency, you can sell securities to non-qualified investors (aka the Greater Fool in your comment).

That said, I'm not sure I would be willing to invest at the IPO but if Twillo can show they are getting traction on their business plan and reach profitability, then I would consider investing in them at that stage.

I have no experience with IPOs but as a Twilio customer they've been pushed a revamp of documentation, client libraries, their user interfaces, as well as several new products in the past ~6 months. My guess is an IPO would enable them to continue that. That or they just did it for a little hockey stick in revenue before the IPO.

>if they did a big reverse split prior to the S-1 its possible the employees will have underwater options at the IPO

Any past examples of this?

IANAL but citation needed. An ISO is granted against a certain point in time, and would be affected (as in, included) by a split at a future time. So in a 2:1 split you'd get double the shares at half the price. Other way simply doesn't work as that would screw your cost basis up and IRS would get all green and angry at you :)

The easiest way to screw people is to issue another set of shares and dilute.

Lots. One I was personally familiar with was SSNI (Silver Spring Networks)

Can you elaborate on the exact financial implications of a reverse split prior to IPO? This Brad Feld article [1] seems to say the aversion to this is simply emotional.

[1] http://www.feld.com/archives/2005/06/when-are-350-million-sh...

Company, running privately for years and years, marginally cash flow positive but requires additional capital to expand, or develop the next product, or build inventory. Employees get refresher grants annually with an ever increasing strike price from .10 - 3.50 over say 8 years. Now during the road show the bankers say "You're company is really worth about 1/10th what you think its worth according to this feedback, we either cut off the roadshow or we recaptialize at a lower valuation." So the company does a 50:1 reverse stock split to get its outstanding stock numbers in line with the expected valuation of the company.

I'm not an accountant, but I've listened to a lot of accountants explain what is, and what is not, taxable. In this case, if you let your employees take a haircut (so their $1/share strike price is now $50 a share on a company expected to go out at $18) that isn't taxable (and it bites to be an employee). If your employee exercised their shares at the lower cost (to avoid capital gains etc) they now have a 'basis' value of $50 a share so if they sell shares at $18 the can claim a $32 / share capital loss. If you take back the vested but unexercised shares and issue vested shares at a new lower price, that price can be no lower than the pending IPO price (FMV) or it's a taxable event. And then when your company makes it out the gate and your long suffering investors cash out their funds, it pushes the price down around $8 once again putting your employees in a position to exercise at a loss or leave them on the table.

The key though is the company went through a period higher valuation, and employees are issued shares at the higher valuation and at IPO time the company is worth less than it was when you got your option, so your strike price is "high" relative to the company value.

tesla is a good example of a company that did this at ipo.

really, there are no financial implications. the valuation of the company stays the same with a split, but the price of the stock changes proportionate to the quantity outstanding. valuation = # shares * $ per share

what the reverse split does (or split - as twilio did a 2:1 split just over a year ago) is put the cost per share in a range that appears more attractive to buyers. in today's market, that is ~$15 +/-5. so if the internal valuation pre-IPO has the stock at $8, the company often reverse splits 1:2 and then you have an initial price back at $16. that way you don't look like a penny stock going out the door.

> It's unusual to try to pull that off when you're unprofitable.

It may be unusual, but to me it seems even more important to have uncontested control when the common shareholders may be angry.

Here's what that looks like. Twitter's stockholder meeting was yesterday.[1] The stock is down 80%, Twitter is losing money, even Instagram now has more users, and the shareholders are very angry.

Twitter (TWTR) only has one class of stock. But so far, there hasn't been a major effort to oust Dorsey.

[1] http://www.ibtimes.com/twitter-inc-twtr-shareholders-meeting...

My first question would be: how hard would it be for them to become profitable right now?

That translates to: how manual is their business? How much cost in the form of wages, contractors, etc. could they shed?

If the answer is that they could easily become profitable, that means they're leaning into growth. If the answer is 'no' that's a bad sign.

> So they're still not profitable

Why would a company want to raise money (IPO) if they had a high net profit margin? If they're profitable and happy about it, the insiders could just dividend out the money.

If you had to guess what the net loss for Facebook at IPO was, what would you say? More or less than Twilio?

Per their S1, Facebook did $3.7 billion dollars in annual revenue in 2011, and had a net income of $1 billion. And they were growing that at 100% annually.

I'd say the comparison is pretty apples/oranges.

Uncommonly good distillation there. Thank you.

Had no idea that WhatsApp was even a Twilio customer let alone one of its largest.

>We currently generate significant revenue from WhatsApp and the loss of WhatsApp could harm our business, results of operations and financial condition.

>In 2013, 2014 and 2015 and the three months ended March 31, 2016, WhatsApp accounted for 11%, 13%, 17% and 15% of our revenue, respectively. WhatsApp uses our Programmable Voice products and Programmable Messaging products in its applications to verify new and existing users on its service. We have seen year-over-year growth in WhatsApp's use of our products since 2013 as its service has expanded and as it has increased the use of our products within its applications.

>Our Variable Customer Accounts, including WhatsApp, do not have long-term contracts with us and may reduce or fully terminate their usage of our products at any time without penalty or termination charges. In addition, the usage of our products by WhatsApp and other Variable Customer Accounts may change significantly between periods.

Yes, this is fascinating. I can only imagine that as more and more developers flock to "free" SMS verification services provided by companies like Facebook (Account Kit) and Twitter (Digits), their long term outlook is even more unsure.

Could you share a link to the Firebase SMS verification you stated in your comment? Was actually looking for something like this... :D

Ah, sorry about that -it looks like I misremembered and they don't actually offer that. I'll edit that out so it doesn't mislead more people.

Sure, no problem! Was just curious, it seemed too good to be true :D

That's pretty interesting. Surely WhatsApp has used their leverage to get lower rates with Twilio that others do not get...right? I'm assuming WhatsApp knew to some degree but I wonder if they knew just how high that percentage was.

I worry that maybe there's a bubble in Silicon Valley created by all these startups being large customers of each other so it's just a bunch of VC money going around in circles.

Isn't lots of capital flowing around the goal of any healthy economy?

Yes, but if the flow is too isolated it's vulnerable to exponential deceleration

I suspect this will be painful to Twilio in a couple years. If you think anything like WeChat and its service ecosystem is coming to the rest of the world, it's going to happen on Facebook (or Telegram), not WhatsApp.

Facebook owns Whatsapp. Anything that happens on Facebook will be in conjunction with Whatsapp.

Right, I'm suggesting FB wants people to end up on Messenger.

Messenger = US, WhatsApp = Rest of the world

Viber = when WhatsApp voice is down during the world cup

Sort of. WeChat in China, LINE in Japan.

And again, if you look at what WeChat has done with embedded services, and believe that will spread, then you wonder whether it will happen on WhatsApp vs. something else. And I don't see Facebook putting the energy into the automation/interaction platform on WhatsApp that it is going to do on Facebook.

I thought about modifying it to include Asian saturation, but I was thinking more so about Facebook services, of which Viber is not one but an underdog

Revenue is great; sales & marketing costs are fine, competitive environment is great; the main concern here is the cost of ongoing service.

Revenue: Twilio made $166M in 2015. From Q1 2015 to Q1 2016, thew grew 80% -- so we can project a 2016 revenue of around $300M. At that pace, they'll hit ~$1B in 2018 or 2019.

Landscape: They have very few competitors, in constrast to other high-profile enterprise startups like Box.

Cost of revenue: Their cost of revenue -- servers, telecom bandwidth, customer support -- is ~45% of revenue. Typical SaaS startups run around 20-30%. I suppose this is the danger of being in the telecom space -- you do have high data costs.

Sales & marketing: Coming in at ~$50M, or ~30% of revenue is quite reasonable. Box raised concerns a couple of years back when S&M were 125% of revenue; they were able to get it down to 65% or so and then they IPO-ed. 30% is fine.

The cost of revenue is interesting. I want to shine some light from an insider perspective to the industry.

I operate a telecom company that mimics the twilio API and we are nabbing their bigger customers left and right. Being fully transparent - our average cost per minute of long-distance is $0.00014 (with 6 second increments) and twilio charges $0.0015/minute (with _60_ second increments).

Wholesale long-distance prices are falling MUCH faster than application providers charging per-call or per-minute. IMHO, That arbitrage will be squeezed eventually as telecom becomes more commoditized.

Twilio has been very effective at the low volume end of the market with individual developers where simplicity and time to market is more important than price.

But that equation changes as a company grows. The question remains whether they can also play effectively at the high volume end of the mArket. I have heard of several other companies that mimic the Twilio API, but with much more competitive pricing.

AWS is successful because companies are deeply locked into their unique services and APIs. Twilio does not (yet) have the same deep lock-in of customers.

That's a great comparison between AWS and Twilio.

I think Twilio is going to try to get there - and they have made some progress that's made it difficult to mimic on the backend.

I would hope that their cost structure is flexible enough to allow them to be competitive in the high volume space. That may not be nearly as much margin, but at one point in time, only 2 years ago, 2 customers made up 35% of their revenue (from what I had heard).

Take any developer that knows nothing about telecom and start dialing in seconds. That's extremely addicting - but it is quickly replaced as those bills rack up with pretty small volume pricing discounts.

Switching from twilio to us? Easy. Change the URL.

Switching from AWS - with the insane amount of APIs and toolkits that entrench you into it's structure to someone like rackspace or google? Much more difficult.

Thanks for a helpful breakdown with context!

> the main concern here is the cost of ongoing service.

Where does that cost appear? Just the COR you mentioned?

Good for them! I love their service and use it on GoatAttack.com

Holy crap. This is the best $0.89 I've ever spent. I'd like to nominate GoatAttack.com as an IPO candidate. Are you listening, Goldman?

Off topic. GoatAttack is the coolest service of all time.

I love goats. Out of curiosity, would you be willing to share how well goat attack packs have been selling?

Well I've goat to tell you, we send a lot of goats! To give you an idea, since we launched April 2015, we've sent over 2 million messages.

You need to make this stuff international, I was about to throw money at you to goat my enemies.

Wow nice. This is kind of random, but can I ask how you got/licensed the photos of goats?

Your company is the new Unicorn. It's so great.

Would you say they're the Greatest Of All Time? ;)

Just used this, Breaker05 is probably going to do better from the Twilio IPO than the Twilio employees ... :P

I get an "Invalid Attack Plan" error when trying this out :(

shit! I'll figure it out real quick. What plan did you choose?

The 30 one.

It's fixed. Sorry we wrote the code for this site drunk in a night.

It's all good. Less all good, though, is that I managed to complete an order for the 13 one targetting my coworker and his phone has remained silent since I placed the order.

EDIT: I tried the allegedly fixed 30 goat order as well to no avail.

EDIT 2: Actually it did work but my coworker's phone is on vibrate and he didn't react as loudly as I had hoped :(

As one does.

Haha this is great! I use Twilio for TheSimplePostcard.com

I'd like to be on the team working on printing GIFs please.

You would use a lenticular printer for that right? Animated GIFs!

Competitors are already ahead of the game:


I don't like the fact that I have to give permission for future charges to use Paypal. It should be an option.

My friend has been getting spam texts ever since I goat attacked them. Are you selling phone numbers or leaking them?

It's hard to get me to part with my money. I didn't go through with it, but this site almost convinced me to.

Coming soon 100 GoatAttack clones...

Canada please... there's no end to money I'm throwing your way then :->

Can confirm, works for Canadian numbers (same country code, and billed the same on the Twilio side of things afaics)

this deserves its own Show HN

Greatest service ever! Are you sending out term sheets? ;)

Nice. But doesn't confirm amount when processing payment.

That is soooo awesome! Just sent an attack on my wife :)

Please do a UK version, better yet a worldwide version

omg, that's amazing! So using this tonight!

okay, I am still laughing and yes I used it just now.

Still how do places like yours actually get the word out?

We got pretty big about a year ago when we posted it to /r/internetisbeautiful (mods took it down after about an hour since it requires a phone number and that's "personal info"). From there, @thepacketrat from Arstechnica picked it up and ran a story and it just sort of exploded from there for a couple days. At the peak of it's popularity we were on Ars, Business Insider, the front page of Mashable, and a handful of other outlets I can't remember off the top of my head.

That's crazy. If you don't mind my asking, does it actually make a decent amount of money? I always wonder whether things like this with very tiny transaction amounts, and (I'm assuming) a low avg. orders/person.

Also curious how hard it was to code something like this. I can think of a few less funny things like this that I'd find pretty useful for my own projects and wondering if I have enough skills to make something like this.

It makes a bit of money but not enough to quit a day job. Writing it was super simple. Both Braintree and Twilio have excellent NuGet packages for managing both APIs. I've used Twilio with node as well and same thing, very easy to use module on npm for dealing with their API. If you're thinking about doing something with Twilio stop thinking about it and just go do it. You can send yourself a text message in literally 2 lines of javascript using their npm module, 3 if you include a callback (https://gist.github.com/bcruddy/2a5bb8ac0ee538519a45fc2b3925..., got it down to 2 with a callback).

Thanks for the info, much appreciated! I did the Codecademy Twilio tutorial ages ago and wanted to try it again recently but it appears to be down unfortunately.

I'll have to give it another go and it looks like they have a Ruby gem up on their repo I'll dig into.

This is genius

This is the first time I've ever looked through an S-1 before, but in the Risks section they say:

    We have a history of losses and we are uncertain about our future profitability
Is it normal to go public when being uncertain if you'll ever be profitable?

The Risks sections are always like that. Any advertisements for stocks must have disclaimers about a wide range of possible risks, and that despite promising historical data you could lose your entire investment. Otherwise they could face expensive lawsuits when future shareholders claim that they were misled and not informed of these risks.

For example from Facebook's S-1: "Growth in use of Facebook through our mobile products, where we do not currently display ads, as a substitute for use on personal computers may negatively affect our revenue and financial results.", "We expect our rates of growth will decline in the future."

Google's S-1: "We expect our growth rates to decline and anticipate downward pressure on our operating margin in the future.", "We are susceptible to index spammers who could harm the integrity of our web search results.", "New technologies could block our ads, which would harm our business."

I cannot disagree with your attitude more. This company is saying they have an existing threat to their ongoing operations that _will_ be fatal, that they are unsure will ever be solved. This is fundamentally different than saying ad blockers could impact Google's business.

In a way, their honesty is unexceptional because they are required by law to be honest about their risks. But the level of risk is not usual.

Wide spread ad blocking would be fatal or nearly fatal to Google. The loss of the vast majority of their income and the resulting contraction that comes with that would probably tear apart the company.

Near-universal ad blocking (across all kinds of devices) would be fatal to so many different businesses and business models.

Revenue primarily derived via ads seems kind of unsustainable at this point. And the same may even eventually be true of TV commercials.

This kind of language is very standard. The risks section pretty much always contains obvious platitudes ("An earthquake might destroy all our computers," "All our employees may quit").

The "risk factors" section is a required part of an S-1. The applicable SEC rule[1] says that the section should list "the most significant factors that make the offering speculative or risky."

You do see some really interesting ones from time to time. For example, RSA's annual reports used to include the following math-related risk factor:

"Our cryptographic systems depend in part on the application of certain mathematical principles. The security afforded by our encryption products is based on the assumption that the “factoring” of the composite of large prime numbers is difficult. If an “easy factoring method” were developed, then the security of our encryption products would be reduced or eliminated."[2]

[1] https://www.law.cornell.edu/cfr/text/17/229.503

[2] https://www.sec.gov/Archives/edgar/data/932064/0000950135010...

I am by no means an expert here, and IANAL, but in my limited experience, yes it is very common to see statements like that in filings. They have to disclose any and all potential risks to investors, and as basic as it seems that is a risk.

I don't have much knowledge here, but I always thought one of the main reasons to go public because you want to raise money to either expand or you are strapped for money. If anything I would be suspect of companies who are extremely profitable and doesn't need to raise money at all but going public.

Companies must go public if they have a certain number of shareholders. I think the number is 500 or more, but don't quote me on that.

That number sounds correct. I've just been reading Pour Your Heart Into It (by the Starbucks CEO), which mentions "the SEC considers a company public if it has more than 500 registered shareholders", and that they had to request a special exemption from the SEC for their Bean Stock employee shares program.

That section seems to have a bunch of generally understood truths. When you read that line in context with the others it doesn't seem that bad.

Many/most of the risks outline in an S-1 are boilerplate like this. Obviously future financial results are unclear.

Think of it as a standard disclaimer, to pre-empt potential lawsuits.

Looking at their escalating losses, I have to wonder if this IPO is a desperation play after failing to raise private money at an acceptable valuation in the current climate.

I continue to be surprised by the trend of companies who have fallen short of profitability filing for IPO's. So often i find myself asking "is this the best for the company and its employees or is it best for the investors who want a faster return, at the expense of the company and its employees?"

We can't complain about individual (non-accredited) investors getting locked out of fast-growing tech companies and simultaneously complain when companies IPO when they've reached significant revenue but not yet hit profitability.

IPOs are a capital-raising event; if companies only did them when they were profitable they'd be no more than VCs cashing in after they've milked out all the good upside potential.

Why would an IPO be bad for the company and employees?

It's just another fundraising round, with new shares issued.

I guess you're suggesting that an IPO exposes a company to more of a herd mentality regarding immediate profitability which it wouldn't be exposed to in a private round of financing, and that it might be punished for it?

> I guess you're suggesting that an IPO exposes a company to more of a herd mentality regarding immediate profitability

An IPO exposes a company to ruthless financial scrutiny, which doesn't exist when they're private.

Going public and having your share price drop below expectations is the most epic of down rounds.

That statement assumes that private late stage investors aren't ruthless and don't scrutinize the companies they invest in ?

My assumption (based on the last few tech IPOs) is that late stage investors are putting lipstick on a pig and trying to get out the door before the music stops.


And Steve Blank:

> Steve Blank on the Tech Bubble: 'VCs Won't Admit They're in a Ponzi Scheme'


Traditionally an IPO was a mechanism for raising funds for continued growth. I know VC backing has been the more favorable mechanism of late, but being profitable has never really been a trigger for an IPO.

The company is a tool to serve the interests of the investors, there is no "good for the company" distinct from "best for the investors". (Good for the employees is a thing, but it's quite often not the same thing, and not what the company exists to serve outside of, e.g., labor coops.)

Don't be surprised, the whole point of an IPO is to raise money to fund business growth.

there is no trend

I'm surprised all of these comments are so negative. Yeah, maybe there are some things that don't quite add up yet, but they have great developer engagement, solid services, and are actually innovating in the space. Twilio is a winner. When or how much is another question.

They also have competitors [1].

[1]: https://www.quora.com/Who-are-Twilios-competitors

I love Twilio, but I'm a little surprised they lost $35M on $166M rev in 2015. I thought they were very close to profitability.

They are not being managed for profitability; they are being managed for scale. They are growing at near 100% y/o/y, so management has decided to keep the pedal down until they win the market. Profitability comes in the out years, way down the line. Amazon is the most famous (successful) example of this.

I don't work there, but I can assure you that nothing at Twilio is structured to be a profitable small company.

But what moat? There are numerous competitors to Twilio who are either cheaper or provide more niche services.

You can be Amazon when you're the 800lb gorilla. Twilio is not that gorilla.

This is a great comment because it is almost verbatim what was said about Amazon. Actually, this is still frequently said about Amazon's retail operations.

I remember talk that eBay was a better business than Amazon because they had network effects and were thus more defensible. Oops.

Also worth noting: Amazon wasn't the 800lb gorilla when they filed their S-1 (valuation: $438mm).

Want to make a long bet? I bet you Twilio doesn't turn into that gorilla. AWS is a far cry different than Twilio.

1) AWS != Amazon. Amazon went public 10+ years before AWS launched. AWS is a tiny part of Amazon's revenue today. You moved the goal posts! We were discussing a money-losing Internet retail pure-play; you're comparing to a heavily-subsidized (via start-up capital etc.) tech services pure-play.

2) Which is another key point: the prospects of the company at IPO are very different from the company today. A bet on AMZN today is largely a bet on AWS, which is very different than a bet on AMZN in 1997. If Twilio continues to succeed, it will be because they can use this investment to grow into a stronger long-term position.

I don't know Twilio well enough to take a bet either way. I'm just pointing out that most smart people (you, even, perhaps?) didn't think Amazon would be that gorilla, either. And that was the correct bet, which just happened to turn out wrong.

So if forced to bet, I bet with statistics (against Twilio). But only because building that gorilla is insanely hard (and depends on luck) and not for any of the reasons you've cited.

"A bet on AMZN today is largely a bet on AWS"

Haha you gotta be joking. It's just the opposite. AWS is a business at scale with fat margins. Amazon retail isn't at scale, not even close.

He definitely moved the goal posts, but remember that AWS is most of Amazon Incs _profit_ today.

Also, AWS is a small-ish part of Amazons _revenue_ but given the relative growth rates that is less and less true every year.

The reason why AMZN stock is so high currently has a lot to do with AWS.

I am taking that long bet. I am a Twilio system integrator and have been a super fan for almost 5 years. I believe they will become that gorilla. In their growth strategy from the S1 their goal is to expand focus on the enterprise which from where I sit is going to be the way they turn into that gorilla.

As they move into that enterprise market their competition is not the telcom API providers https://www.quora.com/Who-are-Twilios-competitors It will be the large monolithic (on prem or in cloud) products like Genesys, Aspect, Avaya, Cisco, etc which represents a huge market.

If you believe the logical market trends they lay out, and I do, that: - agility in the way software is developed and deployed (the move towards continuous integration) drives innovation - the availability of services like Twilio that provide easy to integrate building blocks of functionality make it easier to build - building rather than buying can allow enterprises to differentiate service

Then you can see how Twilio will start eating into that $45B market while staying way out in front of those other telcom API providers who may see the same trends. Going public with all the scrutiny that comes with it I am sure is part of that strategy. Even if the big guys start buying the smaller API providers as Cisco did with Tropo they are not going to cannibalize their existing monolithic communication business.

So I believe if Twilio can help drive those trends specifically in the communication software space then I believe they will win big. Just like AWS started selling a means to provision and scale servers out quickly but today sell a whole suite of tools to transform the way infrastructure is managed and software is deployed Twilio will go from automating calls and sms to transforming how enterprise build and deploy software to communicate with customers.

Telecom/communication services like Twilio's are =extremely= sticky.

Not by most standards of stickiness. They don't have my data. They don't have a monopoly. There aren't any network effects that I can think of (they've worked the one angle here as well as they can -- developer mind share).

I'm not saying they aren't a good business, but I wouldn't call them particularly sticky, any more than Rackspace is sticky. Infrastructure is a hard business to be in.

Developer mindshare is sticky though - much more so than monopolies (fragile, disruptible, unless protected by law).

Your developers usually don't pay the bills, and CFOs are always looking for cheaper options that are just as good.

Mindshare is silly in a commoditized space.

Exactly. I didn't mention Rackspace idly -- they used to have huge developer mindshare back in the day. Didn't save them, and it won't save Twilio if they can't find something truly sticky to keep people on their platform.

I would argue that the stickiness is derived from enterprise. If you get Twilio in as a core dependency on a legacy application that check is never ever gonna stop coming in the mail.

It's just absurd that a company can't be profitable with 28M paying users some of which include Uber and WhatsApp.

It's not that they can't be profitable. It's more along the lines that they are re-investing all of their profits to grow the business. The market Twilio is in has plenty of room to grow and Twilio has to aggressively capture it or else someone else will. If they wanted to become profitable, they can. They're just spending a lot to continue to double every year.

You're looking at it wrong. Twilio _could_ be profitable with 28M users, easily, but they'd rather not be profitable and spend more money on expansion.

All nonprofitability means is they expect ROI on dollars spent today. In other words a dollar spent today will, in their model, increase their future (discounted) free cash flow. In even more words, profit is when a company runs out of investible ideas (within the assumptions of their hopefully convincing model). The size of the company has nothing to do with it (canonical example is Amazon where you can change the 28M users to at least 280M and rev in the billions).

it says "In thousands, except share, per share and customer data" - so it may be 28 thousand accounts. May have misread this though


They can but choose not to, seems to be what the parent is saying.

You can look at it like they are borrowing 35 million a year on top of their profits in order to fuel their expansion

Isn't Amazon only profitable because of AWS? If you cut that out or put AWS into a separate company, Amazon still wouldn't be profitable as a company if I remember correctly.

It's hard to overstate how much easier the Twilio API has made it for developers to interact with SMS and phones.

When I first built StoryWorth, it only worked over email because I thought voice recording would be too complex (both to use and to implement).

However, users kept asking for it so I finally bit the bullet... and it was way easier than I expected. Using the Twilio API, I had voice recordings over the phone working within days.

The team is also super friendly. Less than a month after our launch, someone reached out to me and they wrote about our company on their blog:


Really glad to see their continued success!

Amen. I'm a hobbyist programmer and a while back I used Twilio and was amazed at how easy it is to use.

The finance geek in me is very excited to see their numbers and have a chance to do some due diligence and possibly invest.

"Disrupt" appears 18 times in this filing. Is that code for "one day we'll be profitable, I promise!"

Does anyone have recommendations for resources/guides to S-1s (ie what to look for, which sections are usually boilerplate, what is normal/abnormal, etc)?

We use Twilio for our phone support over at getstream.io, it was really easy to setup. Makes it fun to build this type of stuff :) Congrats to the their team!

Interesting that they are "selling" base revenues. After all total revenues in 2015 were $167m, and base revenues only $137m.

The definition of the $30m "missing" revenues seems to indicate that this piece of the business might churn at any moment, or is just a brief "burst" of revenues w/o the transactional nature of SaaS.

Depending on the lumpiness of these bursts, that is a smart decision to "ring-fence" in the reporting of an otherwise sound recurring business. Guess this is a good CFO here...

Not even cash flow positive. Stay away.

Yes, but the deficit/revenue is falling fast 2013: 53% 2014: 30% 2015: 21% 2016Q1: 11%

Yes, because they've cut sales/marketing/g&a hugely as % of sales. Their opex profile now looks more like a normal, mature software company. Pity they still (and prolly always will) spend nearly half their revenues on connection/network fees.

Sucks to be a phone company / utility. Difficult business to rock even when you're an amazing, innovative, unique company like twilio.

As a naive nincompoop, is there any way for me to guess the initial price of a share when they become available?

How good of a guess do you need? If you want something that's +/- 50% you can probably do that pretty easily. +/- 10% is probably impossible at this stage. They will do a roadshow (fly around the country literally pitching large investors on buying their stock). After the roadshow they will gather data about the interest, and where it's from. Institutional investors are usually preferred over retail because they are less likely to immediately flip the shares -- but institutions may not pay as much. They will hope to have far more interest than they have shares allocated for the IPO, which will allow them to raise the price (stokes interest in the stock, which helps support the price once they're public). There's a lot that goes into this and I'm only marginally more knowledgeable than you are, so I'm probably missing 90% of the interesting stuff.

If you are a shareholder and asking from that perspective, or know any employees who may hold options, you should keep in mind that there will be an associated lockup for 180 days after IPO, during which time the stock will probably do all sorts of "interesting" things. Predicting the price it will be when the lockup expires is beyond anyone's ability. :)

Down the line there will be estimates -- companies progressively update their S-1s as they approach the actual IPO date. It's almost always challenging to get in at the opening price, though -- usually those are deals done with big funds and banks that help place shares.

Also, I think it's generally not a good sign if you, as an individual investor, are able to get in at the offering price; it generally means that the big institutions didn't really want in on those shares, which wouldn't instill much confidence in the stock.

I send 1M texts a week.

https://www.quora.com/Who-are-Twilios-competitors/answer/Kum... - My answer to who are their competitors. The list of competitors is massive.

Ctrl+F patio11. What? There's no patio11 comment here. Surprisingly "quiet".

https://en.wikipedia.org/wiki/Initial_public_offering#Quiet_... (???)

Ha! I was able to accidentally guess 3 weeks before the IPO https://twitter.com/MikeTweetFeed/status/725077010796539904

If someone with better knowledge of S-1s could shed light on this: where can we see the option pool / option grants awarded to employees? Must be somewhere in there, no?

Do you want to see the overall size of the pool? That's simply shares outstanding. Do you want to see shares owned by specific people? That's only going to be there for the largest holders. Keep in mind shares outstanding is almost certainly larger than the existing options held by employees for a few reasons. First, people probably haven't vested their options completely in many/all cases. Secondly, some reserve is maintained for anticipated hiring.

The S-1 doesn't reveal every shareholder or potential shareholder (either unexercised option holder or still vesting). You can get into this somewhat when you look at compensation expenses. Some portion of that is shares granted -- but that's only a retrospective number.

OK thanks, it was more to get an idea of "how much stock do the employees own vs. VCs and execs" but it looks like we don't have enough data to compute that

You can get an idea of this just by using standard funding math. Series E means investors hold 70% give or take. Execs hold 20-25% of the remainder, and rank and file employees have < 5%. One factor here that is meaningful -- original shareholders have taken money off the table, meaning they've given up ownership in the company to investors in exchange for cash. I don't know if that offer was made equally to all shareholders (I've heard a lot of good things about Twilio, so I imagine it was) -- which is why I say < 5% -- the number would be larger otherwise.

Only stockholders >5% are required to show up in an S-1

I'm curious what protects Twilio from a race to the bottom in pricing from competitors. The barrier to entry here seems fairly low. There's Plivo, Nexmo, Tropo, Sinch, and probably others. Some of them appear to have reached near feature parity with relatively low spend.


- Reliability of the core service... if you receive inbound calls/SMS, you need to be available 24/7.

- Better/cheaper carrier integrations in more countries. Getting local voice/SMS enabled numbers in every country is a very manual process, you have to go to each country and negotiate deals with local providers.

- Better international routing

- In terms of the core products, features like Copilot, Notify API. Also voice features like conferencing are very hard to do well; Twilio does them well.

- Better fraud detection and prevention - see http://www.nytimes.com/2014/10/20/technology/dial-and-redial... for an example.

Interesting. Is it commonly agreed that Twilio is better at all these things? (It appears you worked at Twilio for a couple of years).

I've used Plivo, and it does have reasonable conferencing features, and I didn't note any issues with reliability. I only used it for US calls, but they seem to have an extensive list of other countries supported.

I've not used the others on the list, but they all have fairly impressive big name client lists. That's fairly hard to do if there's a leader in the space that's outclassing you on all fronts.

Did they actually set the expected value of the stock to $.001/share?

No, thats not what par value is

Still can't get an inbound SMS number in Denmark. Damn you TC gods

$40 a million is a lot of cash to bleed.

Authy (YC) acquisition was a bust.

How so? I was at Signal and they seemed to have a pretty good 2FA model.

  >  Jeff Lawson(1) --- 8,623,617 --- 11.9%
How pathetic is this? Around 90% of the company is taken by the vulture capitalists and you, as a founder, only get to keep 12%. Bill Gates at the time of Microsoft's IPO had around 50% of the company.

I see this a bit differently. Imagine getting to build $119M in value for yourself without needing to worry about profitability, by leveraging other people's money. Expressed that way, it sounds like a pretty good opportunity.

From a 1986 Fortune article: "With pretax profits running as high as 34% of revenues, Microsoft needed no outside money to expand."

[1] http://fortune.com/2011/03/13/inside-the-deal-that-made-bill...

Why doesn't Twilio have 34% profit margin? Because their price is low and their costs are high. If they increase the price of their product and cut certain costs, they would have similar profit margin to Microsoft.

The big question is the elasticity of their market. Microsoft could charge high prices because they were pretty much the only game in town first for microcomputer programming languages and then for PC-compatible operating systems. If they raised their prices, what would their customers do? Not write software? Write for a platform that has no users?

If Twilio raises their prices, will they make more money? Or will it cause people to not use Twilio, either opting for competing free services or using alternatives to SMS entirely? I don't know, and I don't think Twilio does either; hence the profitability risk.

They also don't own the networks they operate on.

As the quora question here - https://www.quora.com/How-did-Bill-Gates-own-such-a-large-sh... - says, its for a pretty straightforward reason, economics.

If you need investor money to grow, you get diluted. If you don't you don't.

Why does Twilio need investor money to grow and Microsoft did not? Microsoft also grew rapidly, but didn't take a lot of outside funding. Why? Because they charged adequate price for their products. In the documents, Twilio stated they have a hard time determining pricing (something I've seen with other SaaS companies as well). Since they are not profitable with the current pricing, they should increase it and cut certain costs.

That's because Twilio doesn't exist in a bubble. They're in a highly competitive sector. Their pricing has to reflect that.

They may lose money in the short-term but it allows them to become the de facto standard for telephony APIs and then they can increase their pricing or they can leverage their size to open new revenue streams.

The major investors (Bessemer, USV, Fidelity) amount to 48.2%. Bear in mind that other founders and employees will also hold equity, and that Jeff Lawson already cashed out a big chunk of equity (detailed in the doc).

Given that Twilio has raised a lot of money across a number of rounds (six listed in the document) as a loss making company, none of this seems that strange to me.

where do you see that? I don't know how to read those things

Page 143, or ctrl + F for "All executive officers and directors as a group (9 persons)".

it says how much they own, but not how much Jeff cashed out, right?

Ah, my bad, thought you were looking for the ownership numbers. He cashed out $15.6M worth in two transactions. Page 139. Quick math, without his share repurchases, he'd own roughly 15% of the company. 2-3 percentage points for $15M in cash seems like a pretty good deal.

2013 Repurchase: $6,355,308

2015 Repurchase: $9,310,100

Evan Cooke cashed out $4.4M in the same transactions.

Thats 12% of > $1B. Those "vulture capitalists" have invested >$230M into Twilio at various valuations to help it grow.

He was already paid out amounting to $9,310,100 prior to the IPO. Consider that insurance just in case an IPO never happened.

I am skeptical, a bit, of their longterm ability to fight off margin compression.

What do people use them for?

If minutes of calling, inbound or outbound, that is trivial in terms of switching costs.

If sms, there are plenty of competitors, including teli.net (disclaimer, I know people that work there), haven't directly compared pricing however.

The real question to ask is how much lockin they have managed to generate. Without lockin they will eventually suffer margin compression.

This is a good question since there are a lot of software available which can easily replace the Twilio service, so instead of monthly payments you can host it yourself for much less. I think that Twilio is doing well only with small customers as the biggest customers could save a lot by self-hosting the same service. In fact you just need to install an Asterisk or some other Softswitch and on the client side use something like the mizu webphone which has all the Twilio's capabilities like API for call, video, chat, SMS, presence and others.


Stop spamming for Paysa. 100% of your comments are blatant advertisements.


We detached this subthread from https://news.ycombinator.com/item?id=11780119 and marked it off-topic.

You've mentioned Bitrix24 in 2 of your 3 posts on HN, either you're a fan and passionately advocate this product...

...Or you're not disclosing a interest in the company.

Since when is a run-of-the-mill cloud PBX a "Twilio alternative"?

There have always been competitors in this space. There used to be bunch of companies, and there are still several, that offered various levels of telephony integration, especially in the SMS/MMS space. I kind of view Twilio as the Stripe of the telephony world. Twilio came along and made a developer-friendly API around a bundle of services, where before you may have to use one service for one thing and another for something else. Or one provider may only reach some carriers and not others. Twilio kept it basic, not really building anything on top of their API, just selling the API itself. Other companies tried to compete against their own clients. For example, many SMS/MMS providers would offer an API, but then compete against their clients by also selling campaign management platforms or mobile marketing services.

The commercial SMS market is full of companies that are rivals but also customers.

This is happening because the actual network operators often require their customers to provide a volume of X SMS's per month, and they have to pay upfront. They are then selling their capacity downstream in a long distribution chain, finally ending up with regular businesses that wants to add SMS capability.

Regulation changes is the only thing that stirs the market tbh.

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