The Twilio IPO is over.
Investors were eager to get in on the developer-focused messaging service that looked to end the tech IPO drought, and shares shot up to potentially inflated highs at launch. Shares more than doubled from the $15 initial offer and have settled around the $40 range.
But according to JPMorgan and Pacific Crest, who released notes on the company on Monday morning, Twilio is sitting right where it needs to be.
“Twilio leads in cloud communications software for developers. This functionality has become instrumental in enabling some of the most prolific cloud services, including Airbnb, Uber, HubSpot, Zendesk, Lyft and WhatsApp,” Brendan Barnicle, analyst at Pacific Crest, said in a note to clients.
While JPMorgan and Pacific Crest rated the company’s market perform, they were optimistic about its future.
For starters, it’s the only company in a really valuable space. JPMorgan calls its technology a “super network” as it sits in the perfect place to capture the market’s shift to cloud services.
Because Twilio charges its customers for each message sent using the service, the more messages that are sent, the better Twilio does. As the companies using Twilio scale, so does Twilio’s revenue. Big tech unicorns that are focused entirely on growth, like Uber and Airbnb, are really the perfect clients for Twilio.
Some say that the company is too reliant on big clients, like WhatsApp. It would hurt Twilio if WhatsApp found a way to move away from the service, but that might be difficult to do.
Even companies that use the service would have a hard time building their own version of the technology, according to Mark Murphy, an analyst at JPMorgan. This puts Twilio in a commanding position in an estimated $45.6 billion communications software business.
IPOs have the potential to spike, shooting up as everyone clamors to get their piece of the pie, but dropping once the initial excitement cools. This was not the case for Twilio. The initial climb was not to an artificial high, but a real valuation of the company, according to JPMorgan’s and Pacific Crest’s valuations.
Shares have settled now, and would require additional work by Twilio to set on another upward tear, but this is possible, even likely, according to Murphy and Barnicle. They rate the company market perform for now, but say that they are watching the company for signs of the next upward move.