Venture investors, as well as tech companies hesitant to try going public, were hanging on the outcome of communications software company Twilio’s IPO this week in hopes that it would signal a thaw in the mood on Wall Street for such offerings.
So far, Twilio is delivering a strong positive signal. The San Francisco-based company sold 10 million shares at $15 a share, beating its anticipated top price of $14. Twilio (NYSE: [[ticker:TWLO]]) shares started trading on the New York Stock Exchange this morning at $23.99, and reached $29.61 by the end of the day. That amounts to a trading boost that nearly doubles the IPO price.
The IPO pulled in $150 million for Twilio before expenses, and the haul could go higher. Underwriters have 30 days to buy an additional 1.5 million shares at $15. Twilio’s public debut may also allay some fears that Wall Street won’t support the high valuations claimed for tech companies as they raise money privately in their early years. After a $100 million fundraising round in 2015, Twilio became one of the scores of private companies ranked as a “unicorn” worth at least $1 billion. Its IPO supported that valuation, which is now estimated at about $1.2 billion.
But results for a single fast-growing company may not presage a favorable reception for all unicorns. As Twilio’s IPO approached this week, Sharepost president Sven Weber warned fellow conference-goers in San Francisco not to make predictions based on “one datapoint,” Forbes quoted Weber saying. “If the Twilio IPO goes well than everybody will say that the drought is over and the companies will lineup. But if it goes bad, then you’ll see the opposite reaction.”
Twilio provides software developers with a sort of bolt-on ability to add communication features like messaging and phone calls to their applications, such as e-commerce platforms and ride-hailing mobile apps. Due to Twilio’s behind-the-scenes mechanisms, for example, Uber customers might be able to talk to their drivers and receive text updates on car arrival times without leaving the Uber app to go to separate message or phone apps.
Twilio, founded in 2008, is among the companies that allow tech entrepreneurs to develop apps with advanced features quickly and cheaply. It relieves developers of the need to write code that incorporates phone and other communications functions into their apps, by providing them with its application program interface (API). Developers can then adapt Twilio’s pre-made communications features to suit their own needs.
“Our goal is for Twilio to be in the toolkit of every software developer in the world,” is the much-quoted goal the company declared in its IPO prospectus.
Customers pay Twilio more as they scale up their use of Twilio’s features, which include video and authentication in addition to voice and messaging. Twilio earns some of its revenues by providing phone numbers for use within apps. The company has established global relationships with telecom carriers to form a network that supports its services.
In its IPO prospectus, Twilio reported 2015 revenues of $166.9 million, an 88 percent rise over its 2014 revenues of $88.8 Million. The company has not yet reached profitability. Its net loss of $35.5 million in 2015 was more than 30 percent higher than its $26.7 million net loss in 2014.
Twilio’s customer base is diverse, but the company says that 15 percent of its revenue came from Facebook’s WhatsApp in 2015. Twilio has no long-term contracts with WhatsApp and other customers with similar accounts, the company said in its IPO prospectus. Other customers include big retailer Nordstrom, Hubspot, Zendesk, and the American Red Cross.
Twilio encourages developers to register for free accounts and experiment with its features, and it counted 900,000 developer accounts by the end of March. The company reported 90,000 paying accounts, and of those, more than 28,000 yielded revenue of at least $5 in March. In March, Twilio had 567 employees in San Francisco, New York, and in global offices including London, Dublin, Hong Kong, and Singapore.
Twilio’s public debut could be good news for other companies operating as API platforms that support the growth of a variety of innovative tech companies, and that share in their group success, according to the business news site ProgrammableWeb.
But in a market estimated to grow to almost $50 billion, Twilio already has competitors, says ProgrammableWeb writer Patricio Robles. Among those are Cisco unit Tropo, and Nexmo, recently acquired by Vonage, Robles says.
Twilio plans to further develop its technology, expand its global reach, attract more large business customers, and offer more extensive support to customers who may pay more for that service.
Even though Twilio has pulled off an ambitious IPO plan, the pressure of being the first venture-backed tech company to complete an IPO in months won’t lessen. Market watchers will be waiting to see whether the company’s share price dwindles—-the fate of some other tech companies that have dropped below their IPO levels.
Trading of the 10 million shares sold in the Twilio IPO could begin immediately. But company insiders and early investors, who own the majority of Twilio shares, will have to wait six months if they want to sell them. A sell-off or any drop in the share price could have negative consequences for the startups coming after Twilio.
