I’m back from SIGNAL, Twilio’s annual customer and developer conference, and have had a few days to think about the sessions and the overall environment of the conference. While Twilio pushes its own narrative through press releases and product announcements, below are four takeaways from the conference that help separate the SIGNAL from the noise. I obviously was only able to see a small percentage of the presentations, so I’d be interested in the thoughts of others who attended.
Flex is a hit. Flex is Twilio’s SaaS platform built on top of their communications APIs, and is a direct assault on the lucrative call center market. In speaking with would-be customers, you get the distinct impression that Twilio is flush with Flex orders that will keep them busy well into next calendar year. Even if you significantly discount their list pricing of $1/active agent/hour, you quickly come up with fairly conservative growth scenarios in which Flex helps Twilio blow past their guided revenue estimates. With Flex reaching general availability, expect this trend to accelerate, and to see its full impact starting with their Q1 earnings announcement.
Ambivalence regarding the SendGrid deal. The general consensus regarding Twilio’s just-announced acquisition of SendGrid seemed to be that the deal was logical, but that the price was modestly rich. Some of the financial types would have preferred to see a debt-financed deal, or one partially financed via a secondary offering that could have been raised during Twilio’s recent all-time highs; either scenario presumably would have resulted in less dilution. Still, the general consensus was that this deal checked a necessary box, and will be seen as neutral in the long term.
Significant developer interest in video APIs. Video is a particularly difficult engineering problem, and of the sessions I attended, those involving Twilio’s video APIs seemed to generate some of the most extensive developer Q&A. The advanced session detailing the video roadmap was particularly impressive, with detailed demonstrations of enhanced APIs for managing network quality drawing enthusiastic developer responses. Their entire video team was impressive, and this could be a significant area of growth going forward.
Narrowband IoT is very promising, and will drive use cases we have not yet imagined. In conjunction with T-Mobile, Twilio announced the release of a narrowband programmable wireless product that will enable developers to create ultra-low-power on-network devices. Twilio claims certain devices will be able to run for as long as 5-10 years on just a pair of AA batteries. Twilio distributed developer kits containing a SIM, an Arduino-based development board, antennas, temperature/humidity sensors, push button sensors, and more. Developers seemed eager to get their hands on these kits (I took two), and I’m sure more than a few attendees received extra scrutiny walking through airport security with this box of scary looking electronic parts. With unicorns such as Bird relying on similar underlying IoT technologies, I would expect adoption of these programmable wireless APIs to accelerate.
This week’s news regarding Facebook’s lax data security policies, while troubling, appears likely to have created a short-term opportunity to own the dominant social network at a significant discount. Today I acquired out-of-the-money Facebook call options (9/21/18 expiration) on the belief that the business fundamentally is sound, the market reaction to the current news cycle is overblown, and that there exists a high probability that Facebook will return to, or exceed, its recent prices in advance of contract expiration; the ongoing selloff likely also constitutes a logical entry point for a long-term buy-and-hold investors.
My investment thesis is simple:
Facebook is dominant. With nearly 80% of all US social media ad spend, Facebook is the undisputed king in social media, both in network size and ad revenue.
Relevant fundamentals are strong. Though US user growth has stalled, top-line revenue growth remains ridiculous, international user growth is healthy, and average revenue per user is at an all-time high.
Facebook’s penetration into small business advertising likely is in its infancy. The company’s ability to demographically and geographically target users is extremely powerful, and attractive to both B2C and B2B advertisers, many of whom at first may be slow to advertise on unfamiliar platforms.
Facebook ads represent a good advertising value. In my experience, the cost of lead acquisition using Facebook ads (even adjusting for the reduced purchase intent of social media leads) is favorable relative both to other social media and search platforms. Basic market economics dictate that both market penetration and ad prices will increase until such time as an approximate economic parity exists between Facebook ads and alternate forms of lead acquisition; this trend is likely to drive significant growth of average revenue per user.
Facebook is addictive and unlikely to be eliminated from everyday life. Many people try to give up Facebook; most soon return. Critical mass is long since established, and other company-owned properties remain on rapid growth trajectories. Furthermore, through a variety of smart strategic initiatives (e.g. Facebook as a means of authentication throughout the web), the Company has made it difficult or impossible to stop using the service; an exodus from Facebook is a low probability event.
The largest perceived risks are unlikely to materialize. Though there will be considerable bad press, as well as entertaining congressional Sturm und Drang, significant regulatory or legislative blowback in the United States appears to me unlikely in the current political climate.
The market reaction is disproportionate to the risks. Facebook is down 10% compared its price just two days ago; movement of this magnitude appears irrational assuming most other components of the investment thesis are correct, or at least not woefully wrong.
Recession or generalized market correction. If the market goes down substantially, Facebook will follow. The 10% haircut received in the most recent two trading sessions may somewhat soften this risk.
Political blowback. There is political risk, but it is difficult to envision a worldwide, unified response sufficient to meaningfully impact Facebook’s growth or profitability.
Legal risks. Facebook will get sued a lot; this likely will matter very little.
Timeframe. The 6-month timeframe of the options seems to be the weakest part of this investment idea. If you are not looking for leverage through options, the long-term buy-and-hold approach likely will serve you well.
I’m a man with an opinion, and a flawed one at that. Be skeptical. Assess this opinion for yourself, verify the data referenced, and use your own judgment when making your investment decisions. If you happen to make money based on the ideas presented herein, that’s wonderful. If you have respectful comments or contradictory data, it would be welcomed.
Every other Monday, my ten-year-old son must complete a seemingly simple school assignment: pick a newspaper article, extract some basic information such as the title and name of the publication, write definitions for three new vocabulary words, and compose a brief summary describing the article’s main points and why the piece is of interest. This modest task, I reasoned, should take ten minutes, and logically would conclude well in advance of my second cup of coffee.
“The best of us must sometimes eat our words.”
― J.K. Rowling
Though Charlie possesses a sharp mathematical mind and is a voracious reader of several thousand pages annually, getting him to write even two original paragraphs has become a source of no small amount of frustration. So steadfast is he in his disdain for writing that the completion of each half-page document represents a temporal milestone against which other life events now are measured: Aunt Maggie’s baby was born two days before the first current events essay…..we’re going to Disney one week after the next two hundred word masterpiece. The whole process is exhausting, and I quite nearly must pre-medicate in the runup to this twice-monthly torture. The process, however, has not been without its duly-earned rewards.
Three weeks ago, during the second fortnight of our struggle, Charlie and I happened upon a Wall Street Journal article (no, making your ten-year-old read the WSJ is NOT a form of child abuse!) that was of interest, and which I now safely can confirm has practical utility in everyday life. The article described the virtues of the lowly two-dollar bill, the least common paper currency in the United States. Armed with an understanding of the topic that only a ten-hour struggle with fourth-grader can provide, I resolved to experiment with the two-dollar bill on a recent Florida vacation. The day before our trip, I withdrew $100 worth of $2 bills, and used them throughout the duration of our Ft. Lauderdale stay. I am now an unabashed supporter of throwing a Jefferson down at pretty much any reasonable opportunity. Here’s why:
The $2 bill is overvalued. The novelty of a $2 bill far outweighs its buying power. Paying with a deuce builds rapport that has immediate social and economic value. In one instance, my wife and I rented an umbrella from a beach attendant. We decided specifically not to rent the beach chairs ($20 each per day..insane!!!). We paid the $10 umbrella rental fee, and I tipped the attendant with a pair of $2s. He specifically remarked about the novelty of the $2 bills, and we spoke for a few minutes before he left me to my trashy vacation novel. Some minutes later the attendant returned, two beach chairs dragging in the sand behind him. “For you,” said the attendant with a smile, “The cost of chairs is just $4.” A 10x return on a $4 tip…not too shabby.
It’s a social currency. If you give an individual two $1 bills, that’s a non-event, but when you give someone a $2 bill, now that stands out. Valets become more responsive. Servers remark, “You’re the guy who tipped with $2 bills yesterday…I never see those!” By giving someone an item that has not just economic value, but also curiosity value, you are saying to that person, “You are unique.” The $2 can help lead you to conversations with interesting individuals with whom you otherwise are unlikely to interact. People like that.
The incremental economic cost typically is $0. The most common use for the $2 was in tipping a valet, bartender, or server. I routinely tip these folks anyway, and didn’t feel as if the denomination of the bill had any influence on the amount I actually paid them. The amount was the same, but the experience was far better.
The next time you’re at the bank, ask for some $2s, use them in your daily life, and see what happens. You’ll be more interesting to other people, you might get better service or something additional at no cost, and you might even strike up a conversation with someone who ends up being a friend…and that’s priceless.