Is Twilio a Buy?

One of this year's hottest stocks is Twilio (NYSE: TWLO) . The leading provider of in-app communications solutions has seen its shares skyrocket 262% this year. It is the largest stock, by market cap, to have more than tripled over the past year.

Twilio is on a roll, naturally. Revenue soared 68% in its latest quarter . Top-line gains continue to outpace the number of developers on the platform, a healthy indication that its solutions are becoming more valuable to the app publishers that are relying on Twilio more with every passing quarter. Twilio was obviously a great buy for opportunistic investors who got in earlier this year, but is it too late to chase the market darling higher? Let's see if the stock is still worth considering in your portfolio after its monstrous run through 2018.

Entrance to Twilio's Signal conference for developers earlier this year.

Image source: Twilio.

Earning its keep

Twilio didn't back its way into this year's jaw-dropping pop. The app-enhancing specialist continues to get better with every passing quarter. Top-line growth has accelerated from 41% in the fourth quarter of 2017 up to 48%, 54% and 68% through the first three quarters of 2018, respectively.

Twilio was already playing an essential role in Uber, Hulu, WhatsApp, and many other hot mobile apps when the year began. The key to Twilio's success is that it's riding a lot of fast-moving coattails, but it's not riding passively. There are now 61,153 active customer accounts for Twilio, but that's up just 32% over the past year. Developers are sending more money Twilio's way as their apps get used more, and Twilio's dollar-based net expansion rate is up a hearty 145%.

A successful company can't rest on its laurels, and Twilio isn't willing to settle. It rolled out Flex -- its first fully programmable cloud contact-center solution -- this year. As its base of developers grows it will continue to find ways to provide new in-app solutions.

Growth will inevitably start to slow, and it may be happening right now. Twilio is targeting 59% to 61% in total revenue growth for the current quarter, and analysts see the top line climbing at a mere 31% clip in 2019. We'll see how it all plays out. Twilio itself has been highly conservative with its outlooks. It has perfected the art of "beat and raise" over the past year. The real surprise here would be if revenue actually only rises 31% in the year ahead, and in that scenario, it would be a shock if the stock didn't sell off in the process.

It's easier to bet on the bullish argument. Twilio should continue to become an indispensable component of interactive mobile apps. Momentum is on its side. The stock isn't cheap, but you don't score a bargain on a serial outperformer. Twilio isn't likely to triple again in 2019, but it has so many things going for it that the smart money has to be on the stock beating the market again in the year ahead.

10 stocks we like better than Twilio

When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor , has quadrupled the market.*

David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Twilio wasn't one of them! That's right -- they think these 10 stocks are even better buys.

Click here to learn about these picks!

*Stock Advisor returns as of November 14, 2018

Rick Munarriz has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Twilio. The Motley Fool has a disclosure policy .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

More Related Articles

Sign up for Smart Investing to get the latest news, strategies and tips to help you invest smarter.