TWLO: Bold Prediction on Twilio Stock – Short Squeeze Ahead?
Update August, 8 2017: TWLO stock is up 10% this morning after announcing revenues that grew 50% from prior year. This news alleviated some of the worries surrounding their dependence on Uber. In addition, CEO Jeff Lawson stated that they see Uber as a continued customer and even hinted that there could be growth with them over the next year. Twilio also added 2,700 new customer accounts this quarter while launching 42 new products, including everything from speech recognition to machine learning.
This combination of positive news and a revenue surge should fuel their growth story once again. It also gives the bulls the confidence to squeeze the short sellers and force them to cover their short positions. At the time of this update, there are 21 million shares of TWLO held short. If the short covering happens, TWLO could have a significant pop and momentum could continue in the short term.
Update May 2, 2017 4:44 pm central: Initial reaction to TWLO is negative based on revised quarterly and annual numbers, despite beating consensus estimates for Q1 by 2 cents per share. Hopefully CEO Lawson has some tricks up for the upcoming conference call to pull them out of the 24% decline. My take is that while this is certainly worrisome, the long-term narrative still appears to be on track as they have further cozied up to obvious potential acquirer AMZN. This price certainly has to make them very attractive to a company like AMZN or other potential companies looking to expand their cloud offering. It really seems reminiscent of LNKD after it plunged 80 dollars only to start a bidding war between MSFT and CRM before getting taken out. However, we will see if that is the case.
Major Short Squeeze Coming for TWLO?
Updated: May 1, 2017 11:07 central time – Be sure to come back as we will be updating information contained in this article through the TWLO earnings release on May 2, 2017.
Twilio (TWLO), one of the hottest IPOs of 2016, has certainly cooled off since its highs of $70 / share. But, could it be ready to take off again?
If you’re not familiar, here’s a little about TWLO from Wikipedia: Twilio is a cloud communications platform as a service (PaaS) company based in San Francisco, California. Twilio allows software developers to programmatically make and receive phone calls and send and receive text messages using its web service APIs. Twilio’s services are accessed over HTTP and are billed based on usage.
In layman’s terms, TWLO allows computer nerds to create applications that make and receive phone calls and / or text messages automatically. In addition, TWLO technology also makes it easy to create and assign new phone numbers automatically inside their own apps. Now, we know this sounds pretty boring on the surface, but there are actually numerous use cases for this technology (e.g. tracking of advertisements, automatic texts and calls for sales follow ups, automated call alerts, text alerts for various businesses, etc).
As with most recent IPOs, TWLO only offered up a small % of float hoping to achieve a large pop (due to only a small number of shares available). With the combination of the hype associated with a Silicon Valley unicorn IPO, and a small supply of shares available to the public, TWLO was off to the races. When ultra high growth companies go public, especially at an early stage, it is very hard to peg a valuation (think GOOG or TSLA). The same goes for TWLO. As usual, with these IPOs come fierce debates and large bets.
Short interest in TWLO has never been higher.
However, just last week TWLO breached its 50 day moving average in a bullish manner on the back of a few positive catalysts such as an upgrade by JP Morgan.
In addition to the extremely high short interest, there has also been a strong increase in institutional ownership. Therefore, we have evidence which shows more confidence in the valuation of the company.
INSTITUTIONAL HOLDERS (as of 5/1/2017 via finance.yahoo.com)
|% Shares Owned:||72.36%|
|# of Holders:||187|
|Total Shares Held:||44,560,748|
|3 Mo. Net Change:||7,707,387|
|# New Positions:||9|
|# Closed Positions:||5|
|# Increased Positions:||21|
|# Reduced Positions:||11|
|# Net Buyers:||10|
If you are skeptical about my feeling on heavily short stocks, then surely you trust Jim Cramer of Mad Money: “If a stock has a lot of short sellers, and all of a sudden good news comes out, the stock could surge. That is because the short-sellers then panic and scramble to cover their short positions — a move called a “short squeeze”.”
So are we going to get a major short squeeze when TWLO announces May 2?
When you combine an amazing 164% of the float in a short position (per yahoo finance) with positive technical and fundamental catalysts, the gas is certainly ready to be poured on the fire. However, we will have to see if the fire ignites or the short sellers dump more water on it.
We will have more commentary on TWLO in the coming days. So, stay tuned to this article or sign up for our newsletter below so you can follow our updates on TWLO as we get closer to the earnings announcement on May 2!
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Clint Kirby - Chief Financial Strategist
Clint Kirby, DreamWork Financial Group is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.
Disclosure: Clint Kirby owns shares and options of TWLO
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