Why Twilio Stock Popped on Friday

What happened

2021 was a rough year for cloud communications software provider Twilio (NYSE: TWLO); shares are down 50% in 52 weeks. But 2022 could be a bit better.

At least, that's what Bank of America (BofA) thinks. This morning, the megabank announced it's resuming coverage of Twilio stock with a buy rating and a $250 price target. As of 3:50 p.m. ET, Twilio stock is up 6.3%.

Arrow angles up on a green stock chart.

Image source: Getty Images.

So what

Bank of America calls Twilio "a pioneer and leader in the Communications Platform as a Service, or CPaaS, market," reports today. And as this new market expands, the banker believes that Twilio could enjoy "sustainable 30%-plus top-line growth for five-plus years."

By 2024, that would mean Twilio could more than double its current rate of $2.6 billion in annual sales and be doing $6.5 billion in business annually.

Now what

With Twilio stock currently carrying a $33.5 billion market capitalization, that works out to a 5.2 times sales valuation, which sounds pretty cheap until you recall that we're talking about sales that won't happen for another three years (and might not even happen then).

Also worth remembering is that Twilio currently has no profits (it lost $839 million over the past 12 months instead) and no free cash flow either, and BofA isn't making any promises that Twilio will be profitable in 2024. Fact is, according to analysts polled by S&P Global Market Intelligence, the earliest that Twilio can reasonably be expected to start earning generally accepted accounting principles (GAAP) profits is 2025.

I guess we'll have to wait until then to find out if BofA was right to recommend buying it.

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Rich Smith has no position in any of the stocks mentioned. The Motley Fool owns 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.


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