Net Loss: $38,896,000
"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.
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.
Edit: found it. http://avc.com/2015/02/the-40-rule/
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.
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.
The fact that no one here has mentioned it is telling.
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.
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.
FY13 FY14 FY15
Sales and marketing: 21,931 33,322 49,308
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.
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?
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.
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!!
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?
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.
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?
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.
Is there anything here that indicates that the cash infusion from an IPO would get them on the track to profitability?
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.
Any past examples of this?
The easiest way to screw people is to issue another set of shares and dilute.
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.
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 may be unusual, but to me it seems even more important to have uncontested control when the common shareholders may be angry.
Twitter (TWTR) only has one class of stock. But so far, there hasn't been a major effort to oust Dorsey.
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.
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.
I'd say the comparison is pretty apples/oranges.
>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.
Viber = when WhatsApp voice is down during the world cup
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.
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.
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.
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.
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.
> the main concern here is the cost of ongoing service.
Where does that cost appear? Just the COR you mentioned?
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 :(
Still how do places like yours actually get the word out?
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.
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.
We have a history of losses and we are uncertain about our future profitability
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."
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.
Revenue primarily derived via ads seems kind of unsustainable at this point. And the same may even eventually be true of TV commercials.
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."
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.
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?
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.
And Steve Blank:
> Steve Blank on the Tech Bubble: 'VCs Won't Admit They're in a Ponzi Scheme'
I don't work there, but I can assure you that nothing at Twilio is structured to be a profitable small company.
You can be Amazon when you're the 800lb gorilla. Twilio is not that gorilla.
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).
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.
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.
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.
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.
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.
Mindshare is silly in a commoditized space.
You can look at it like they are borrowing 35 million a year on top of their profits in order to fuel their expansion
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!
The finance geek in me is very excited to see their numbers and have a chance to do some due diligence and possibly invest.
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...
Sucks to be a phone company / utility. Difficult business to rock even when you're an amazing, innovative, unique company like twilio.
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.
https://www.quora.com/Who-are-Twilios-competitors/answer/Kum... - My answer to who are their competitors. The list of competitors is massive.
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. :)
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.
- 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.
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.
> Jeff Lawson(1) --- 8,623,617 --- 11.9%
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.
If you need investor money to grow, you get diluted. If you don't you don't.
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.
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.
2013 Repurchase: $6,355,308
2015 Repurchase: $9,310,100
Evan Cooke cashed out $4.4M in the same transactions.
...Or you're not disclosing a interest in the company.
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.