Cathie Wood had been a major investor in communications platform as a service (CPaaS) leader Twilio (NASDAQ:TWLO). However, Wood — named the best stock picker of 2020 by Bloomberg News editor-in-chief emeritus Matthew A. Winkler — has since sold all Twilio holdings from her ARK portfolio. Personally, I’m not convinced Wood is the best barometer of a company’s prospects, and I remain relatively bullish on the CPaaS stock.
Wood Is Out of Twilio
In recent years, Cathie Wood’s ARK Invest had a significant investment in Twilio. These investments were made across three of its primary ETFs: ARK Innovation ETF (NASDAQ:ARKK), ARK Next Generation Internet ETF (NASDAQ:ARKW), and ARK Fintech Innovation ETF (NASDAQ:ARKF). Towards the end of 2023, Wood’s investment in the CPaaS stock totaled over 6.7 million shares, representing about 3.6% of Twilio’s total share count.
Appearing on CNBC‘s Halftime Report in early January, Wood appeared fairly bullish on the CPaaS stock. She said that she and her team believed that Twilio would be one of the prime beneficiaries of the artificial intelligence breakthrough. “It has so much proprietary data, and we’ll be watching carefully to see how it follows through on some of the AI promises they made last year,” Wood told CNBC.
However, shortly after this, Wood and her team began selling off their holdings. Over four months, ARK’s position in Twilio gradually decreased before totally exiting in early May. Wood went from one of the company’s biggest supporters to having no position at all.
What Does This Say About Twilio Stock?
Wood’s exit from Twilio naturally suggests a shift in sentiment. As an influential investor, her actions may influence market perceptions of this growth-oriented stock. It could also reflect broader changes in ARK Invest’s investment strategy or a move towards parts of the sector where she sees better value. However, while significant, her decision alone doesn’t determine Twilio’s future prospects, and investors should consider various factors before drawing their own conclusions about the stock.
Interestingly, despite being named the best stock picker by Bloomberg in 2020, investors certainly don’t take Wood’s word as gospel. In fact, I know of several investors who are very skeptical of Wood’s investments and her decision-making.
Wood’s investments in Twilio may also contribute to this skepticism. While I’m not sure of ARK’s weighted buying price, Wood’s investments in Twilio have plummeted in recent years after the stock peaked at around $457 per share in early 2021.
Does Twilio Stock Present Good Value?
It’s interesting that Wood exited Twilio so soon after claiming it would benefit from the AI revolution. In August 2023, ARK gave the following appraisal of the company:
“ARK has long-term conviction in Twilio and values the company’s potential to power modern enterprise to-customer communications as mobile phone adoption grows globally. Twilio’s consumption-based pricing model allows customers to dial spend up or down easily, so macroeconomic conditions have depressed margins recently. As budgets normalize, we believe Twilio should benefit significantly from the AI opportunity.”
– ARK Invest
Personally, I’ve only become bullish on Twilio recently. The company, which has disappointed investors with its earnings and sales growth, is going through a transition. Under pressure from activist investors, the company is making changes, including several rounds of job cuts, which should, if implemented correctly, lead to efficiency gains and improved margins.
Twilio’s Q1 results showed that things weren’t entirely heading in the right direction, however. While top and bottom line numbers beat expectations, investors were clearly concerned by softening sales guidance in the current quarter (Q2).
Regardless, Twilio certainly doesn’t look expensive. The stock currently trades at 20.4x earnings, but analysts expect earnings to grow at 30% annually over the medium term. Seemingly, this reflects improved margins through efficiency gains rather than improving revenue numbers.
In turn, this means Twilio has a price-to-earnings-to-growth (PEG) ratio of 0.68x. If these forecasts are correct, TWLO would be one of the most attractive growth stocks around. Other metrics are also positive. The stock trades at 2.45x forward sales and 17.4x forward cash flow.
Is Twilio Stock a Buy, According to Analysts?
Twilio stock comes in as a Moderate Buy based on the ratings of 25 analysts in the past three months. There are currently 10 Buys, 13 Holds, and two Sell ratings. The average TWLO stock price target is $70.43, with a high forecast of $110 and a low forecast of $50. The average price target represents 13.8% upside potential.
The Bottom Line on Twilio Stock
Personally, the decision by Cathie Wood and her ARK team to exit Twilio has little bearing on my personal opinion on the stock. I’m buoyed by the company’s move to cut costs and improve margins in line with the demands of activist investors. My conviction is also strengthened by the data. Twilio trades with very attractive earnings multiples that are hard to ignore.
