Twilio's Multiple Contraction A Function Of 'Confusion,' Morgan Stanley Says In Upgrade

Shares of Twilio Inc (NYSE: TWLO) are trading near six-month lows, and the recent pullback may be a function of "confusion" related to its growth outlook, according to Morgan Stanley.

The Analyst

Meta Marshall upgraded Twilio from Equal-weight to Overweight with a price target lifted from $130 to $135.

The Thesis

Twilio should be considered a "visionary" communications company as it looks to remove constraints plaguing the traditional B2C communication landscape, Marshall said in a Thursday upgrade note. (See his track record here.) 

Investors are confused about Twilio's growth, since its new and higher margin products like SendGrid, Flex and Authy are not broken out, the analyst said.

This dynamic should change soon, as Twilio is expected to help investors see the true growth and better understand the long-term profit potential, he said. 

Among all companies covered in the unified communications space, Twilio could be the most transformative over the coming five to 10 years as demand grows for tools that support digital transformation grows, Marshall said. 

Morgan Stanley is modeling a 21% compounded annual growth rate over the coming four years for next-gen communication companies, but Twilio's superior platform should help it outperform at a 32% CAGR rate, the analyst said.

The stock's multiple of 0.26 times EV/2020 revenue versus the average of 0.34 times is "too stiff of a discount," according to Morgan Stanley. 

Price Action

Twilio shares were up 1.66% at $114.42 at the time of publication Thursday. 

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