Twilio Inc (NYSE:TWLO) isn’t solely relying on Amazon.com, Inc. (NASDAQ:AMZN) to boost its profitability, it has partnerships with other well-known companies as well, like Netflix, Inc. (NASDAQ:NFLX), Twitter Inc (NYSE:TWTR), and Uber. It is using signaling theory to let wary users, unfamiliar with or skeptical about the company, know that other recognizable brand names trust it. This is a well-known way for relatively small companies to obtain customers.
Wall Street is sending out the usual “this is the greatest opportunity” message. However, history has shown that most IPOs tend to underperform. Recall that most “hot” companies such as Twitter, Square, and GoPro were hyped, and have under performed post IPO. Even the profitable Alibaba has not been able to surpass the high it made, after its lock up period expired.
Observe what is happening to the stock now. It is following in the footsteps of its brethren. The stock is in a downward spiral. In my previous article, I wrote about market structure (3). I think it would be prudent to wait for a hedge fund to signal a buy, which they typically do after hours. It will signal to you that fundamentally, something has changed with the company. (Also Read: Is Twilio headed for a massive short squeeze?)
Recall what happened with Yelp Inc (NYSE:YELP) when Einhorn purchased it according to a May 2 investor letter, 3 days before the company’s earnings were revealed. See where the stock is currently trading. This is understanding market structure. You had many factors in alignment. Though, I cannot bring it up here, I remember options activity being high at a higher strike level. You would not have entered the stock prior to the earnings release. It would have been after the earnings when the picture became clear. I am looking for a somewhat similar scenario to get a clear picture of Twilio. Otherwise, it is just guessing.
I would not assign too much importance to analysts’ opinion given the age and size of the company. Analysts take things for granted, and their valuation models are extremely easy to break. That is why they have to run them multiple times. There is a very well known research on disruptive radical innovation which shows that any major acquisition event or change in the business model results in a flawed model and prediction. These models are only useful if there are no surprises. Given that Twilio Inc (NYSE:TWLO) is trying to grow, you are going to have a lot of surprises and revisions.
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