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Insiders Of Twilio Step Up To Buy Shares – Insider Weekends

  • March 5, 2023

We had an eclectic mix of companies with insider purchases this week ranging from a pizza chain to a specialty measurement company that operates in 35 countries. It was interesting to see the midstream oil & gas company Energy Transfer LP (ET) make our list for a second week in a row after Executive Chairman Kelcy Warren picked up an additional $21.67 million worth  of units. We wrote briefly about Energy Transfer in our last Insider Weekends article.

The inside purchase that caught our attention this week was a $10 million purchase by the founder and CEO of communication software company Twilio (TWLO). This is only the second time he has purchased shares since the company went public in June 2016 at $15 per share. The stock closed the first day of trading up nearly 92% and peaked close to $70 per share a few months later before coming down to earth. As you can see below, his timing in buying shares of Twilio in 2017 at $23.43 per share was excellent and he was a big seller as the stock soared past $200, $300 and eventually over $400 per share during the pandemic related bubble.

Twilio Insider Purchases by Jeff Lawson
Twilio Insider Purchases by Jeff Lawson (click to enlarge)

I read about Twilio and Jeff Lawson in a Fortune Magazine article before the company went public and purchased shares around the time of his 2017 purchase. I sold some shares during the bubble and then added to my position last year after the bubble starting deflating. I was early to this second purchase and should have waited to see if Mr. Lawson was buying before initiating a position.

We wrote about Twilio in our April 2022 Special Situations newsletter and I have reproduced below the reasons I was bullish about the long-term prospects of the company:

When shopping for gifts during Christmas last year, I happened to provide my phone number to a retailer and sure enough, I started getting text messages from them at an annoying frequency. When traveling back home last Friday, I also received text messages from United reminding me to check in for my flight. These text messages are usually facilitated through a communication platform like Twilio that charge their corporate customers less than a cent per message and make the process of delivering these messages seamless. Twilio has worked with mobile carriers across the world (34% of Q4 revenue was international) to ensure messages are delivered without a developer having to worry about working with different protocols across carriers. When I first read about Twilio in Fortune Magazine before its IPO several years ago, their business model made complete sense to me because I had written code that delivered messages to various mobile carriers and had to deal with the specific nuances of each large carrier in the United States. Twilio has set up 1,500 carrier connections in over 180 countries.

Twilio is the largest company in the communication platform as a service (CPaaS) space and allows companies to engage directly with their customers by seamlessly delivering text messages, video messages, authentication messages like the ones you would receive from your bank or broker when you try to transfer money, email campaigns and more. The company does this by providing programmers with application programming interfaces, commonly refered to as APIs, that allow software applications to easily talk to each other. Programmers can use just a few lines of code provided by Twilio to start sending text, video or email messages to end users.

Founder at the Helm and Capital Allocation:

While Twilio doesn’t necessarily fit into the mold of one of our event-driven strategies, most subscribers know that we tend to favor founder-led companies and Twilio checks that box.

The company is led by co-founder Jeff Lawson, who was previously the founding CTO of Stubhub.com and a Technical Product Manager for Amazon Web Services before founding Twilio in 2007. I invested in Twilio shortly after its IPO. When AWS announced a 2-way SMS feature in September 2017, I was relieved to see that they opted to use Twilio under the hood.

Jeff is not only a good technical co-founder, the team at Twilio have been excellent capital allocators. The market sent the stock down after it announced its $2 billion acquisition of the email delivery company SendGrid in October 2018 but the acquisition made perfect sense to me as I had been a customer of SendGrid for several years.

The market eventually realized that the acquisition truly was synergistic as it opened up another customer delivery channel for Twilio and access to a large customer base. The email channel has grown a lot for Twilio with the company delivering 1.3 trillion emails in 2021.

Other examples of their astute capital allocation including a secondary offering of $1.54 billion in February 2021 when the stock was near an all-time high of over $440 per share, issuing $1 billion in debt in March 2021 at rates below 4% and a series of tuck-in acquisitions that have expanded their product offering.

The latest large acquisition announced by Twilio was the $3.2 billion acquisition of customer data company Segment in October 2020 following persistent efforts by Jeff Lawson to convince Segment’s Founder and CEO Peter Reinhardt to sell the business to Twilio. The company used its expensive stock when it was trading above $300 per share to close this all-stock transaction. Despite all the acquisitions and GAAP losses, the company has a very strong balance sheet with over $4 billion in net cash on the balance sheet even after accounting for capital leases.

The stock was already down more than 60% from its peak when I wrote about it but unfortunately it continued heading lower. While companies like Uber got the memo from investors early in 2022 and realized that the market had shifted from “growth at any costs” to “show me the money”, Twilio and other tech stocks with their large stock-based compensation expenses and runaway spending did not react quickly enough and continued to post not just increasing net losses but also negative free cash flows.

The stock has rebounded 46% this year thanks to the January effect and a resurgence of interest in technology stocks but until the company can demonstrate sustainable profitability, investors are going to remain skeptical. It was good to see that for the year 2022, while revenue growth decelerated to 21%, the company was able to generate 22 cents of “adjusted” profits and expects to earn $1.47 per share in 2023. Both Q4 2022 revenue of $1.02 billion and net income were better than estimates.

I still think Twilio’s business model is excellent and that they can generate good shareholder returns over a long horizon if they can have the same discipline with controlling expenses as they did with capital allocation during the bubble. The company trades at 3.21 forward sales and a forward P/E of 50 assuming they hit their adjusted earnings target of $1.47 per share.

Welcome to edition 672 of Insider Weekends. Insider buying increased last week with insiders purchasing $58 million of stock compared to $49.74 million in the week prior. Selling increased significantly to $1.69 billion compared to $1.09 million in the week prior.

Sell/Buy Ratio: The insider Sell/Buy ratio is calculated by dividing the total insider sales in a given week by total insider purchases that week. The adjusted ratio for last week went up to 29.29. In other words, insiders sold more than 29 times as much stock as they purchased. The Sell/Buy ratio this week was unfavorable compared to the prior week when the ratio stood at 21.92.

Notable Insider Buys:

1. Energy Transfer LP (ET): $13.05

Executive Chairman Kelcy L. Warren acquired 1,660,602 shares of this energy-related services provider, paying $13.05 per share for a total amount of $21.67 million. Mr. Warren increased his stake by 2.92% to 58,578,477 shares with this purchase.

You can view the list of recent insider transactions for Energy Transfer LP here.

P/E: 9.19Forward P/E: 7.77Industry P/E: 7.99
P/S: 0.45Price/Book: 1.5EV/EBITDA: 8.42
Market Cap: $40.38BAvg. Daily Volume: 13,916,29552 Week Range: $9.15 – $13.67

2. Twilio Inc. (TWLO): $73.88

Shares of this software and communications solutions provider were acquired by 2 insiders:

  • Chief Executive Officer Jeff Lawson acquired 158,081 shares, paying $63.26 per share for a total amount of $10 million. These shares were purchased indirectly through a trust.
  • Director Donna Dubinsky acquired 3,995 shares, paying $62.72 per share for a total amount of $250,558. These shares were purchased indirectly through a trust.

You can view the list of recent insider transactions for Twilio Inc. here.

P/E: N/AForward P/E: 39.3Industry P/E: 23.76
P/S: 3.51Price/Book: 1.3EV/EBITDA: -14.58
Market Cap: $13.42BAvg. Daily Volume: 4,504,46352 Week Range: $41 – $176.955

3. Glatfelter Corporation (GLT): $3.75

Shares of this engineered materials manufacturer were acquired by 2 insiders:

  • SVP, IGSC and IT Wolfgang Laures acquired 277,000 shares, paying $3.72 per share for a total amount of $1.03 million. Mr. Laures increased his stake by 700.06% to 316,568 shares with this purchase.
  • Vice President, Finance and CAO David C. Elder acquired 8,800 shares, paying $3.52 per share for a total amount of $31,001. Mr. Elder increased his stake by 10.83% to 90,023 shares with this purchase.

You can view the list of recent insider transactions for Glatfelter Corporation here.

P/E: N/AForward P/E: 11.03Industry P/E: 13.68
P/S: 0.11Price/Book: 0.53EV/EBITDA: 10.45
Market Cap: $168.1MAvg. Daily Volume: 490,33152 Week Range: $2.08 – $13.78

4. Domino’s Pizza, Inc. (DPZ): $304.76

Chief Executive Officer Russell J. Weiner acquired 3,333 shares of Domino’s Pizza, paying $303.58 per share for a total amount of $1.01 million. These shares were purchased indirectly through a trust.

You can view the list of recent insider transactions for Domino’s Pizza, Inc. here.

P/E: 24.05Forward P/E: 20.55Industry P/E: 16.28
P/S: 2.38Price/Book: N/AEV/EBITDA: 19.43
Market Cap: $10.79BAvg. Daily Volume: 694,86552 Week Range: $291 – $426.44

5. Waters Corporation (WAT): $326.89

Director Mark P. Vergnano acquired 3,185 shares of this specialty measurement company, paying $313.32 per share for a total amount of $997,927. Mr. Vergnano increased his stake by 856.18% to 3,557 shares with this purchase.

You can view the list of recent insider transactions for Waters Corporation here.

P/E: 26.53Forward P/E: 23.18Industry P/E: 25.29
P/S: 6.48Price/Book: 38.3EV/EBITDA: 20.17
Market Cap: $19.27BAvg. Daily Volume: 350,85952 Week Range: $265.61 – $369

You can view the full list of purchases from this Insider Buying page.

Notable Insider Sales:

1. Walmart Inc. (WMT): $140.67

Shares of Walmart were sold by 2 insiders:

  • Director Robson S. Walton sold 2,481,360 shares for $141.08, generating $350.07 million from the sale. These shares were sold indirectly through a trust.
  • Executive Vice President Rachel L. Brand sold 9,334 shares for $141.83, generating $1.32 million from the sale.

You can view the list of recent insider transactions for Walmart Inc. here.

P/E: 32.79Forward P/E: 20.84Industry P/E: 22.38
P/S: 0.62Price/Book: 4.94EV/EBITDA: 13.9
Market Cap: $379.36BAvg. Daily Volume: 5,885,63152 Week Range: $117.27 – $160.77

2. Airbnb, Inc. (ABNB): $125.73

Shares of Airbnb were sold by 2 insiders:

  • Director Joseph Gebbia sold 2,621,301 shares for $124.14, generating $325.4 million from the sale. 1,362,411 of these shares were purchased indirectly through a trust.
  • Chief Financial Officer Dave Stephenson sold 16,868 shares for $128.21, generating $2.16 million from the sale.

You can view the list of recent insider transactions for Airbnb, Inc. here.

P/E: 45.39Forward P/E: 31.67Industry P/E: 16.28
P/S: 9.45Price/Book: 14.27EV/EBITDA: 35.95
Market Cap: $79.38BAvg. Daily Volume: 6,450,11152 Week Range: $81.91 – $179.09

3. Palo Alto Networks, Inc. (PANW): $191.59

Shares of this cybersecurity platform were sold by 5 insiders:

  • EVP, Chief Product Officer Lee Klarich sold 45,000 shares for $189.97, generating $8.55 million from the sale.
  • EVP, Chief Technology Officer Nir Zuk sold 36,000 shares for $187.20, generating $6.74 million from the sale.
  • Chief Executive Officer Nikesh Arora sold 23,349 shares for $192.02, generating $4.48 million from the sale.
  • Chief Accounting Officer Josh D. Paul sold 1,825 shares for $185.24, generating $338,065 from the sale.
  • Director Aparna Bawa sold 711 shares for $187.62, generating $133,398 from the sale.

You can view the list of recent insider transactions for Palo Alto Networks, Inc. here.

P/E: 2394.88Forward P/E: 41.11Industry P/E: 23.76
P/S: 9.42Price/Book: 79.47EV/EBITDA: 236.97
Market Cap: $57.98BAvg. Daily Volume: 4,484,57352 Week Range: $132.22 – $213.633

4. Paylocity Holding Corporation (PCTY): $191.03

Director Steven I. Sarowitz sold 75,000 shares of this software application company for $202.62, generating $15.19 million from the sale.

You can view the list of recent insider transactions for Paylocity Holding Corporation here.

P/E: 114.39Forward P/E: 35.18Industry P/E: 23.76
P/S: 10.64Price/Book: 15.72EV/EBITDA: 87.81
Market Cap: $10.65BAvg. Daily Volume: 407,97552 Week Range: $152.01 – $276.88

5. PTC Inc. (PTC): $124.84

Director Blake D. Moret sold 100,000 shares of this software and services company for $125.72, generating $12.57 million from the sale. These shares were sold indirectly by Rockwell Automation.

You can view the list of recent insider transactions for PTC Inc. here.

P/E: 43.35Forward P/E: 23.82Industry P/E: 23.76
P/S: 7.6Price/Book: 6.14EV/EBITDA: 27.79
Market Cap: $14.76BAvg. Daily Volume: 692,33552 Week Range: $96.55 – $139.91

You can view the full list of sales from this Insider Sales page.

The list of all insider purchases and sales by management people is only available to InsideArbitrage Premium and Plus members.

Disclaimer: I hold a long position in Twilio (TWLO). Please do your own due diligence before buying or selling any securities mentioned in this article. We do not warrant the completeness or accuracy of the content or data provided in this article.