Morgan Stanley On Bandwitdh Inc: This Isn't A 'Cheaper Twilio'

Enterprise CPaaS company Bandwidth Inc (NASDAQ: BAND) boasts a cost-effective, flexible and responsive solution platform and counts some of the most "demanding" corporate giants as customers. However, there is a misconception between what the company is and what investors think it is, according to Morgan Stanley.

The Analyst

Morgan Stanley analyst Meta Marshall downgraded Bandwidth from Equal-Weight to Underweight with a price target lowered from $74 to $67.

The Thesis

Bandwidth spent a decade and $100 million in building out a nationwide IP voice network and a common talking point among investors is the stock is a "cheaper Twilio Inc (NYSE: TWLO)," Marshall wrote in a downgrade note. Investors may also be guilty of assuming Bandwidth's growth profile is directly tied to growth needs among top clients like Google.

However, comparing the two companies makes it clear Twilio offers "substantially" more software capabilities that helps its corporate clients communicate with their customers through Messenger and apps, the analyst wrote. On the other hand, Bandwidth's hyperscale customer set implies it is "disincentivized" to offer similar capabilities to keep existing volume customers.

Finally, Bandwidth's stock is trading at 0.35 times EV/2020 estimated revenue versus the peer average of 0.34 times, the analyst wrote. The slight premium valuation implies the stock is receiving "near full credit" for its growth but it has less upside to expectations than other companies.

Price Action

Shares of Bandwidth were up 1.56% Thursday afternoon at $72.99.

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