17+ yrs later: Making Twilio Profitable

🧠 Takeaways:

Today, we’re acquiring Twilio (a tool we use at Coco) to turn this lost biz around,  get it back to growth, and finally make it profitable.

1. Sit out the AI boom/bubble to stack cash + acquire the winners.

2. Acquire Social Media Messaging tools.

3. Build/Acquire Compliance-as-a-Service as a native feature.

+ I’m OBSESSED with Claude Code.

LBAB Community: My Claude Code Obsessions

I'm obsessed with Claude Code.

Over the past two weeks, I've probably spent 30-40 hours building out coding agents and new features that I've wanted to work on internally for the team plus some project ideas I have outside of Coco.

And oh my God is this amazing. 

If you have product knowledge and some skills on building features, it is absolutely worth diving into.

I have it running basically all the time on my computer.

What I find it most helpful for is analysis, finding information, and then putting it into a format that's more stable. 

Essentially, building a prototype of my idea.

This definitely is not going to replace my developers at Coco. 

They're actually using this to cut their development time down by 40-50%, but the power of this thing is unreal, and I can't encourage everyone enough to give it a try.

A little preview of what I’ve been working on.

Let’s Examine This Biz

Note: As always, none of what follows is legal, tax, investing, financial, or any other sort of advice. And I was never here.

Twilio, the messaging infrastructure of the internet (powering all the telemarketing phone, email, sms you receive from bizs) is making a comeback but is grossly underperforming other SaaS bizs + the AI stocks it wants to compare itself to.

• Share price: $131

• Market Cap: $19B

• L5 Performance: -63%

• P/E Ratio: 315x

The backbone of so much of the internet isn’t growing and isn’t profitable. Almost 2 decades into this journey, we are officially passing the awkward teenage phase and entering “the will they ever move out and become a real person” phase.

Financial Summary

2024 Financial Statements (YoY Comparison)

Sales: $4.5B (+7%) 😕
Gross Profits: $2.3B (+12%) 👍
OPEX: $2.3B (-20%) 😐

Net Income: -$53m (+94%) 👍

Link to Company’s earnings

TLDR Analysis: Fails the Rule of 40

• Rev +7% is much lower than everyone would expect 🥱

• R&D at 23% of Rev is wild for a 17-yr-old biz. 🤨

• Net Loss improved by 94% to go from huge loss to considerable. 👌

I’m honestly mindblown. 

Twilio’s in this weird spot where it’s trading at 4.7x Rev (around historical avg multiples), but isn’t growing (+7%), has low Gross Margins (51%), and is unprofitable (-$53m).

A biz that miserably fails the Rule of 40 (score of 5) is trading slightly below historical avg. SaaS multiples.

But if you throw some AI in the name, investors are willing to prop you up.

Let’s TLDR This Biz

Twilio is essentially the telemarketing backbone on the internet. If a biz wants to message its customers (Phone, email, text, WhatsApp), they use Twilio.

At CocoAI, we use Twilio for certain services in our infrastructure.

Founding

• Founded 2008 by Jeff Lawson, Evan Cooke, and John Wolthuis

• Solved the problem of complex, expensive telecom integration for developers

The "Aha" Moment

• Made communications (voice, SMS) accessible via simple API code

• Launched Twilio Voice in November 2008

Explosive Growth

• Seed funding from Mitch Kapor and Founders Fund (2009)

• Revenue grew from $88M (2014) -> $492M (2018) (459% growth)

• IPO in 2016

The Model

• Pay-as-you-go messaging APIs for developers as primary customers

• Expanded into email, video, and authentication services

The Collapse

• Stock fell 81% in 2022 after missing 30% revenue growth target

• Recovered by 2024 with profitability + renewed growth, but still down big.

Let’s Fix This Biz

Here are our 3 moves to get Twilio growing again.

1) Cut the R&D team and sit out the AI rush.

Twilio, like every other software biz, wants to wash itself in as much AI stink as it can to boost its valuation.

But why is a dev tool that gets paid to send messages for bizs building AI agents? 

AND more importantly, why are they investing $1B/yr to do so?

Twilio’s biggest wins have come from acquisitions (like Sendgrid + Segment). 

Instead of torching the R&D $$$ on a startup’s job:

1. Cut the R&D spend by 30–50%. 

2. Horde the $.

3. Let a startup figure out what’s next. Buy it .

The triple win for Twilio:

1. They’d add $500m in profits to their P&L this year. (Flipping their Net Loss to +$450m).

2. Wait out the AI bubble that all major tech bizs are trapped in.

3. Pick the winner later w/ their acquisition playbook.

(What messaging infra do you think thousands of AI agent start ups are going to build on top of…?)

Instead of joining everyone to wander in the dark bubble (+ get beat by an AI-first startup) we will: 

1. Collect cash 

2. Focus on their north star: Message volume growth

3. Learn from everyone else’s mistakes.

Takeaway: Not all bizs have to ride every trend.

2) Acquire Social Media Messaging Tool

Twilio has acquired all of their major products today:

1. Communications (Messaging):

   1. Email: Sendgrid for $3B

   2. SMS: Zipwhip for $850m 

2. Data/Customer Data Platform:

   1. Segment: $3B

But conversations brands are having with consumers are transferring from old-school inboxes (Phone/Email/SMS) -> Social inboxes.

Customers are moving more to chatting with brands in IG/TT DMs than email, and that wave is accelerating.

Twilio needs to acquire a tool to provide Social Media DM’ing at scale to customers. 

The math is simple here. A brand that’s emailing and calling their customers will also need to message customers on:

1. IG/FB

2. TikTok

3. X

Twilio makes the most money by 1 client sending the most messages possible.

Whether that’s an Ent customer who needs to build it for themselves (e.g., Instacart).

Or a provider who needs to build it for their clients (e.g., Klaviyo).

Everyone needs to support the 10+ channels customers now expect to interact with brands.

Twilio can be the backbone for all channels for all brands.

Takeaway: Sell in-service multipliers to customers to become richer + stickier.

3) Launch CaaS natively into every product.

1 of the greatest challenges brands are facing (especially internationally) is navigating all the changing consumer privacy protection laws.

Even in the US, changing state laws is becoming a nightmare. Florida, California, and Texas all created different laws on how brands can contact customers by SMS vs. Phone..

1 of the most obvious areas Twilio can provide value to all of their customers is native compliance everywhere.

If they can nail:

1. CCPA (California’s privacy laws)

2. GDPR (Europe’s)

3. APA (Australia’s)

They can provide native compliance so devs + bizs can build and launch messaging in every region, all from 1 platform.

Very similar to how Stripe now offers the financial infrastructure for almost anything a biz needs across dozens of financial “tools”.

The beauty of Compliance is Twilio can automate a very expensive, laborious, reactive process for brands. 

Allowing them so sell:

• Savings.

• Piece of mind.

• 1 platform that does it all.

Takeaway: Take on your customers’ greatest headaches.

Final Thought

When will these mega SaaS bizs ever make money? 

Twilio, HubSpot, Snowflake, Datadog, MongoDB, Cloudflare.

These great promises that, at scale, these SaaS would be profit raking, cash flow machines just haven't panned out.

Really, only the advertisers (Meta, Google) have been able to produce mountains of cash at incredible margins.

All these picks and shovels of the internet never really panned out to be wildly profitable.

(Though they’re still traded to tha moon. Every biz in that list is worth $10B+.)

But at $4B in Rev with a $19B cap, Twilio is still losing money with no clear path to profits in sight, as they dump $1B/yr into funding their AI investments.

Now, there is the 21-yr-old rule that software doesn’t truly become a profit machine until after ~21 years in biz. 

But Twilio is 17 years old, losing -$50m+. 

Granted, it’s been on a positive trajectory the past 3 years (In 2022 they lost $1.2B). 

Maybe we’ll just have to be patient and see how the next 4 years pan out. After all, Shopify turns 21 next year and is just starting to really become a profit + cash machine.