Seize the Growth: Twilio’s AI Innovations Are Driving Huge Upside

Key Points

• Twilio provides a cloud communication-as-a-service (CPaaS) platform enabling companies like Netflix, Airbnb, Uber and Lyft to better communicate with customers.
• Twilio has been integrating AI into its products to enhance and optimize workflows and efficiency.
• Twilio is forming a daily ascending triangle breakout for a potential gap fill.

Twilio Inc. NYSE: TWLO provides developers and businesses tools and products to enhance their communications with customers. Its cloud communication-as-a-service (CPaaS) platform offers basic services like voice, email, and SMS messaging to more advanced interactive services like video, artificial intelligence (AI) chatbots, voice application programming interfaces (APIs), and identity authentication. Gartner ranked it as a CPaaS leader in its Magic Quadrant for the second year in 2024. Twilio has leveraged AI into its services to provide more flexibility and enhance experiences.

The computer and technology sector leader has well-known clients, including the top streaming service Netflix Inc. NASDAQ: NFLX, Airbnb Inc. NASDAQ: ABNB, and rideshare duopolies Uber Technologies Inc. NYSE: UBER and Lyft Inc. NASDAQ: LYFT. It competes with 8X8 Inc. NASDAQ: EGHT.

The Value Proposition of CPaaS

On the surface, CPaaS may not seem like a big deal, especially as an end user. However, the benefit of CPaaS, like most as-a-service platforms (aaS), is not having to bear the expense of in-house building, managing, maintaining, and upgrading the complex hardware and software infrastructure. This and the ability to scale the services to millions of customers are the major value propositions. Businesses use CPaaS to embed communication channels like voice calls, video, email, and text messaging into their mobile apps. Consumers often take these services for granted because they are commonplace these days.

For example, If you’ve ever ordered an Uber or Lyft ride through their mobile apps, Twilio’s platform enables the rideshare app to:

• Send an SMS notification when a driver has been found.
• Provide real-time location updates notifying you the driver is on the way and has arrived.
• Enables driver and passenger communication features like calling and texting if you’re wondering where the driver is.
• Enables text, email, and voice calling options to contact customer service if there's a problem.

Rich Communication Services (RCS) Is a Game Changer

Twilio offers RCS, enabling businesses to take their text messaging to the next level without users downloading more apps. RCS enables companies to send rich media like videos, images, logos, and pictures in text messages. It can include buttons, links, or other triggers enabling the end user to take an action like making a payment, voting, or booking an appointment. It provides a more interactive and branded communication experience with customers, ultimately leading to an improved customer experience and higher conversion rates.

Twilio Leverages AI Services Like Auto Pilot and Flex Insights

Twilio offers its tools and services as APIs that companies and developers can customize to refine their brand and use cases. AI products like Autopilot let developers create, train, and customize interactive voice response (IVR) systems and intelligent AI chatbots that can engage customers, understand natural language, automate tasks, and authenticate and transfer customers to the right agents. Flex Insights monitors and analyzes conversations between customers and agents to provide data analytics, sentiment analysis, and transcription services to optimize workflows for and with agents.

Twilio's Recovery Is Taking Shape

Twilio's second-quarter of 2024 results indicate that business is recovering. The company reported a 17 cents EPS beat, coming in at 87 cents. Revenues grew 4.4% YoY to $1.08 billion, which also beat consensus estimates of $1.06 billion. They grew their active customer accounts to over 316,000 in the quarter compared to 304,000 in the year-ago period. The company has $800 million left in its $2 billion share buyback program, which it will complete by year's end.

The company issued Q3 2024 EPS of 81 to 86 cents versus 74 cents consensus estimates. Twilio expected revenues of $1.085 billion to $1.095 billion versus $1.09 billion consensus estimates. For fiscal 2024, Twilio is raising its non-GAAP income from operations, which ranges from $650 million to $670 million, up from the previous forecast of $585 million to $635 million. Organic revenue growth was narrowed to 6% to 7% compared to 5% to 10% previously forecast.

TWLO Stock Is in an Ascending Triangle Pattern

An ascending triangle is a bullish pattern comprised of a flat-top upper trendline resistance indicating the supply overhand. The ascending (rising) trendline is formed by higher lows, indicating rising demand. A breakout occurs when the stock surges through the upper trendline, whereas a breakdown occurs if the stock falls below the ascending trendline.

TWLO has an upper trendline resistance at $63.91. The stock has been recovering since the $52.51 swing low. The anchored VWAP support is steadily rising at $58.86. As TWLO rises to test the flat-top resistance, it also has the potential to reach the lower gap-fill level at $64.89. The upper gap fill would occur if TWLO rises to $68.85. The daily relative strength index (RSI) is rising to the 61-band. Fibonacci (Fib) pullback support levels are at $61.47, $59.56, $56.86, and $53.81.

Twilio’s average consensus price target is $70.52, and its highest analyst price target is $110.00.  

Bullish investors can buy on pullbacks using cash-secured puts at the fib pullback support levels to buy the dip and write covered calls at fib extensions to execute a wheel strategy for income.

By implementing a bullish call debit spread, bullish options investors can limit maximum downside and profit from modest upside gains for less capital than owning the stock.