Were Hedge Funds Right About Twilio Inc. (TWLO)?

Stocks, especially the once high flying technology stocks, had a lousy start to the new year. QQQ lost 9% of its value in January. We aren’t certain about the bubbly technology stocks that trade for ridiculously high multiples of their revenues, but we believe top hedge fund stocks will deliver positive returns for the rest of the year. In this article, we will take a closer look at hedge fund sentiment towards Twilio Inc. (NYSE:TWLO) at the end of the third quarter and determine whether the smart money was really smart about this stock.

Is Twilio Inc. (NYSE:TWLO) worth your attention right now? Money managers were in a pessimistic mood. The number of bullish hedge fund positions were trimmed by 2 in recent months. Twilio Inc. (NYSE:TWLO) was in 96 hedge funds’ portfolios at the end of the third quarter of 2021. The all time high for this statistic is 99. Our calculations also showed that TWLO ranked 20th among the 30 most popular stocks among hedge funds (click for Q3 rankings). There were 98 hedge funds in our database with TWLO positions at the end of the second quarter.

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. With all of this in mind we’re going to go over the recent hedge fund action encompassing Twilio Inc. (NYSE:TWLO).

Do Hedge Funds Think TWLO Is A Good Stock To Buy Now?

Heading into the fourth quarter of 2021, a total of 96 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -2% from the second quarter of 2021. On the other hand, there were a total of 71 hedge funds with a bullish position in TWLO a year ago. With hedge funds’ capital changing hands, there exists an “upper tier” of notable hedge fund managers who were adding to their holdings considerably (or already accumulated large positions).

More specifically, ARK Investment Management was the largest shareholder of Twilio Inc. (NYSE:TWLO), with a stake worth $1036.5 million reported as of the end of September. Trailing ARK Investment Management was SCGE Management, which amassed a stake valued at $887.9 million. Coatue Management, Matrix Capital Management, and Alkeon Capital Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Highline Capital Management allocated the biggest weight to Twilio Inc. (NYSE:TWLO), around 10.19% of its 13F portfolio. Jeneq Management is also relatively very bullish on the stock, setting aside 9.25 percent of its 13F equity portfolio to TWLO.

Because Twilio Inc. (NYSE:TWLO) has experienced declining sentiment from the entirety of the hedge funds we track, it’s easy to see that there was a specific group of hedgies that slashed their entire stakes heading into Q4. Interestingly, Josh Resnick’s Jericho Capital Asset Management dropped the largest position of the 750 funds followed by Insider Monkey, totaling about $213.9 million in stock. Peter Rathjens, Bruce Clarke and John Campbell’s fund, Arrowstreet Capital, also dumped its stock, about $122.6 million worth. These transactions are important to note, as total hedge fund interest dropped by 2 funds heading into Q4.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Twilio Inc. (NYSE:TWLO) but similarly valued. We will take a look at Emerson Electric Co. (NYSE:EMR), CrowdStrike Holdings, Inc. (NASDAQ:CRWD), Relx PLC (NYSE:RELX), UBS Group AG (NYSE:UBS), General Dynamics Corporation (NYSE:GD), Thomson Reuters Corporation (NYSE:TRI), and Baidu, Inc. (NASDAQ:BIDU). This group of stocks’ market valuations are similar to TWLO’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 34.9 hedge funds with bullish positions and the average amount invested in these stocks was $2374 million. That figure was $6370 million in TWLO’s case. CrowdStrike Holdings, Inc. (NASDAQ:CRWD) is the most popular stock in this table. On the other hand Relx PLC (NYSE:RELX) is the least popular one with only 7 bullish hedge fund positions. Compared to these stocks Twilio Inc. (NYSE:TWLO) is more popular among hedge funds. Our overall hedge fund sentiment score for TWLO is 89.6. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 29.6% in 2021 and still beat the market by 3.6 percentage points. Unfortunately, TWLO wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on TWLO were disappointed as the stock returned -35.4% since the end of the third quarter (through 1/31) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as all of these stocks already outperformed the market since 2019.

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Disclosure: None. This article was originally published at Insider Monkey.