Twilio (TWLO) stock finally ended its post-pandemic decline in 2024. The stock has actually performed rather well, outpacing the S&P 500 Index (SPX) and delivering returns of about 43% over the past 12 months. I’m still bullish on TWLO stock, noting the communications software platform’s favorable valuation metrics and tailwinds from artificial intelligence (AI). I’m particularly buoyed by the price-to-earnings-to-growth (PEG) ratio of 1.3, which looks rather attractive in the current market.
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For those of you new to the company, Twilio is a leading Communications Platform as a Service (CPaaS) provider, offering cloud-based tools that enable developers to integrate communication features into their applications. With a market cap of $16.6 billion, Twilio has established itself as a frontrunner in the CPaaS market, which is projected to grow to $116 billion in 2025.
Put simply, CPaaS enables businesses like ride-hailing services to communicate with their customers. Twilio’s platform includes a programmable communications cloud, customer engagement solutions, and a super network, serving clients across various industries such as technology, financial services, and healthcare.
Twilio Is Leveraging AI to Boost Growth
Twilio’s valuation is central to my investment thesis, but I’m also bullish on the company because of the way it is leveraging AI. The business has performed well over the past 12 months — as reflected in the stock price — with the core Communications business driving growth, particularly in messaging and partnerships with Independent Software Vendors (ISVs).
However, one reason for my positivity going forward is the aforementioned usage of AI to enhance these product offerings and market position. The company is collaborating with OpenAI to integrate the Realtime API for building conversational AI apps. This partnership can drive the business forward and highlights the commitment to staying at the forefront of AI-driven communication solutions.
Twilio is implementing AI throughout its product suite, including fraud protection with Verify Fraud Guard, conversational IVRs through integration with Google (GOOGL) Dialogflow CX, and so-called customer-aware autonomous AI Assistants. These AI initiatives are poised to transform customer engagement, streamline support processes, and provide deeper insights for businesses using Twilio’s platform.
AI as a Service
I’m equally bullish on Twilio because of stock market trends. As we look ahead to 2025, the AI investment landscape is evolving still from an initial focus on enablers to a greater emphasis on adopters and practical applications. This shift reflects a maturing market where investors are increasingly seeking tangible returns on AI investments.
The transition is further highlighted by the rapid maturation of the AI program. As we approach 2025, investors could focus on companies like Twilio that are effectively integrating AI to enhance products, improve operational effectiveness, and drive innovation. After all, for the market at least, AI is really about where efficiency can be driven most noticeably. I believe this may help sustain the stock’s momentum as we move into 2025.
No Valuation Concerns For Twilio
However, core to my bullishness is Twilio’s valuation, which appears attractive in the current market, particularly as the company transitions toward sustained profitability and growth. Its forward Price-to-Earnings (P/E) ratio is projected to decline steadily from 28.4x in 2024 to 20.2x by 2027, reflecting improving earnings and cost efficiencies.
This positive valuation trend is supported by a consensus earnings per share (EPS) growth rate of 49.5% for 2024. This is then seen tapering to a still-solid 10.8% by 2027, indicating consistent long-term growth potential. As mentioned above, this growth rate leads to an attractive PEG ratio of 1.3.
Compared to the broader information technology sector, Twilio’s forward P/E of 28.4x is 15.7% higher than the sector median of 25x, but significantly better than its own five-year average of -96.3%, suggesting it is undervalued relative to its historical performance.
Moreover, analysts have raised earnings estimates for upcoming periods, with 24 positive revisions and zero negative revisions in the last 90 days, reflecting optimism about Twilio’s ability to achieve GAAP profitability by 2025.
This valuation, coupled with the company’s strategic focus on artificial intelligence (AI) integration and customer engagement solutions has bolstered investor confidence, as evidenced by a 108% stock return over the past six months. With improving margins, disciplined operations, and strong AI-driven growth prospects, Twilio offers an appealing valuation for investors seeking exposure to the evolving CPaaS and AI markets.
Is Twilio Stock a Buy, According to Analysts?
On TipRanks, TWLO comes in as a Moderate Buy based on 12 Buys, nine Holds, and two Sell ratings assigned by analysts in the past three months. The average TWLO stock price target is $89.82, implying a downside risk of about 18.1%.
The Bottom Line on Twilio
There are several reasons for my bullish stance on Twilio stock, and central to this is the valuation. Twilio’s PEG ratio of 1.3, based on a forward P/E of 28.4x and an expected growth rate of 21.97%, looks attractive in the current market. This suggests the stock is reasonably priced relative to its growth prospects.
The company’s strategic AI integration, particularly its collaboration with OpenAI, positions it well in the expanding CPaaS market. With improving financials and a projected decline in forward P/E, Twilio offers an appealing mix of growth potential and value along with exposure to AI. The stock’s recent outperformance and momentum further support this bullish outlook.
