TWLO Stock is a non-growth “growth stock” that is irreparable
- Twilio (TWLO) has surface-level appeal from a revenue growth perspective
- On the other hand, the business is not profitable and only digs a deeper financial hole for itself
- Investors should consider avoiding Twilio altogether, even if they believe in the future of cloud-based digital communications.
At first glance, cloud communications and software security company Twilio (NYSE:TWLO) might seem like a worthy addition to a tech-focused portfolio. Still, TWLO stock is not the right asset to buy now as Twilio is in serious financial trouble.
These problems may not be immediately apparent. In press releases, companies tend to strongly highlight the most positive budget data. This may cause some investors to ignore negative data points.
In the case of Twilio, it’s perfectly acceptable to envision a strong future for cloud communications while avoiding this company. As we will see, TWLO stock has gone from a “growth stock” to a toxic asset.
Even beyond the technical aspects of the stock, there is a lesson to be learned when studying Twilio. In particular, informed investors should always look under the hood and read the fine print, instead of just skimming through a company’s main positives.
What’s going on with TWLO Stock?
Suffice it to say, TWLO stock could be considered the poster child for growth stocks gone bad. Anyone who bought the stock above $430 in early 2021 and held it is holding a very heavy bag today.
Keep in mind that the start of 2021 has been a time of rampant speculation, not just in meme stocks but in growth stocks in general. Back then, much like the early 2000s, it felt like the tech-focused high flyers would continue to fly higher.
Of course, it’s easy to see in hindsight that some of these stocks would crash sooner or later. Remember that the stock market is driven by short-term sentiment, but stocks representing consistently unprofitable companies don’t go up forever.
Either way, TWLO stock has fallen far below $300-plus, and it is currently threatening to drop below $100. Going into the double digits would be a psychological blow to shareholders, and there are no reliable support levels below $100.
The sad truth
Frankly, it’s hard to put a value on Twilio. The company has no price to earnings (P/E) ratio since it has no earnings. Don’t expect the company to mention it in their press releases. Informed investors should always dig deeper and pull up negative data points themselves, it seems.
If you just glance at the top of Twilio’s press release covering Q4 2021 and full year 2021, you might get the wrong impression. Global “revenue” is used over and over again, as Twilio’s revenue growth is the main positive aspect of the results.
Indeed, there is no denying that Twilio recorded year-over-year revenue growth in the fourth quarter of 2021 as well as the full year 2021. These are only the first results, however. Really, the end results are what potential investors should focus on.
To get the full tax picture, you’ll want to read Twilio’s Form 10-K carefully. In it, the company admits: “We have a history of losses and we may not be able to achieve or maintain profitability in the future. »
This statement almost screams to investors, “Run for the hills! The admission of “loss history” is followed by this series of troubling statistics:
“We have incurred net losses each year since our inception, including net losses of $949.9 million, $491.0 million and $307.1 million during the fiscal years ended December 31, 2021, 2020 and 2019, respectively. We had an accumulated deficit of $2.1 billion as of December 31, 2021.”
Here, the ugly truth comes to light. Despite the company’s revenue growth, Twilio was unable to cover its expenses. Indeed, the financial hole has only deepened, with 2021 posting nearly double the net loss of 2020.
What you can do now
At the moment, you don’t have to do anything if you plan to buy TWLO shares. It’s perfectly fine to stay away.
You can also read the fine print in Twilio’s financial documents – a good habit for every investor. The surface-level call can only get one business so far, and without profitability, the bull case for Twilio simply isn’t there.
As of the date of publication, neither Louis Navellier nor the member of the InvestorPlace research staff principally responsible for this article holds (directly or indirectly) any position in the securities mentioned in this article.