Twilio, a software and communications solutions company, is known for its cloud communications platform that allows developers to integrate customer engagement features into their applications. The company boasts a stock market value of $10.94 billion, with a current share price of $60.08.
Sachem Head, led by Scott Ferguson, made waves in 2020 with their activist approach towards Olin, which led to significant value creation. The firm has a track record of successful value investing, which has been further solidified by their recent endeavors with US Foods. By securing board seats in these companies, Sachem Head has demonstrated commitment and contribution, setting a clear path for success.
Challenges Faced by Twilio
Despite being considered an industry leader in communications infrastructure, Twilio has encountered several obstacles. While the company saw exponential growth post-IPO in 2016, reaching a high stock price of $443.49, the growth rate has now slowed to 8.5%. This deceleration, coupled with the lack of profitability, has impacted Twilio’s stock price, which currently stands at $60.08 per share.
One of the key factors contributing to Twilio’s lack of profitability is the substantial stock-based compensation it offers, amounting to $676 million in 2023. The company’s operating loss has been attributed to this compensation, leading to an increase in share count from 90 million to 180 million since 2017. However, Twilio has shown signs of improvement by reducing stock-based compensation by 15.4% in 2023.
In a bid to enhance profitability, Twilio underwent significant changes, including the resignation of co-founder and CEO Jeff Lawson in 2024. The appointment of Khozema Shipchandler as the new CEO signifies a shift towards a more financially astute leadership approach. Additionally, the company announced a $2 billion share repurchase authorization to drive shareholder value.
Twilio’s decision to review and right-size its underperforming Segment business showcases a commitment to improving operational efficiency. By appointing a new president for the Segment unit, the company aims to streamline costs and drive margin enhancement. This strategic move aligns with the goal of reducing stock-based compensation and enhancing overall profitability.
Sachem Head’s involvement in Twilio’s board signals a collaborative effort towards achieving shared objectives. With other activist investors like Legion Partners and Anson Funds also advocating for strategic changes, Twilio faces external pressures to divest its Segment business. However, Twilio’s decision to retain Segment under new leadership highlights a calculated approach to business optimization.
Despite the challenges, Twilio remains well-positioned to capitalize on industry growth opportunities. Market intelligence forecasts a mid- to high-teens growth rate, with Twilio expected to lead the pack. By focusing on margin expansion, reducing stock-based compensation, and enhancing operational efficiency, Twilio aims to unlock its full growth potential and deliver value to its shareholders.
Twilio’s journey towards profitability and sustainable growth faces hurdles that require careful navigation. With activist intervention shaping strategic decisions and market dynamics influencing future prospects, Twilio must strike a balance between innovation and financial discipline to emerge stronger in a competitive landscape.