(CRM) Archives

How PayPal is Destroying Legacy Banking

Gazing into the future, investors know it’s time to deploy strategies to make money in 2019.

This year has been a bizarre one for technology stocks.

The industry was overwhelmed by a relentless geopolitical circus that had more sway on tech stock’s price action than in any year that I can remember.

Technology stocks have never been more intertwined with politics.

The so-called FANGs have really been taken out behind the woodshed and beaten, and their get-out-of-jail card is no longer free to access with politicians eyeing them as take down targets.

They are no longer invincible even if they still earn bucket loads of money.

A good amount of the public animosity towards the big tech companies has been directed to socially awkward CEO of Facebook Mark Zuckerberg and his negligence towards the concept of personal data.

Facebook was once the best company in technology to work, I can tell you now that prospective applicants are scrutinizing Facebook’s actions with a gimlet eye and turning to other opportunities.

Current Facebook employees are putting in feelers out to former colleagues planning optimal exit strategies.

Remember that it’s not my job to always tell you which tech stocks are going up, but also to tell you which tech stocks are going down.

One stock poised to outperform in 2019 is international FinTech company PayPal (PYPL).

The stock has proven to be Teflon-like deflecting the pronounced volatility that has soured the tech sector in the second half of the year.

The pendulum of regulation-flipping will concoct new winners for 2019 and I believe PayPal is one of them.

PayPal is in a dominant market position with a core customer base of 254 million users and growing.

The company is so dominant that it processes almost 30% of all global payments excluding China where foreign companies are barred from operating in the FinTech space.

The quality of the product is demonstrated by a recent note from research firm Nielsen offering data showing that on average, PayPal customers complete transactions 88.7% of the time.

This astoundingly high number for PayPal checkout conversion is about 60% better than “other digital wallets” and 82% better than “all payment types."

PayPal’s home country, United States, is still vastly unmonetized in terms of the breadth of penetration of online and e-commerce payments.

America has failed so far to adopt the amount of FinTech that Chinese consumers have rapidly embraced.

The great news is that late-stage adoption of FinTech services will offer PayPal a path to profits that bodes well for the earnings and its share price in 2019 and beyond.

Investors can expect total payment volumes (TPV) consistently nudging up in the mid-20% range.

The firm helmed by Dan Schulman is just scratching the surface on pricing power.

PayPal has changed its approach of ‘one‐size‐fits‐all’ in merchant contracts to a dynamic pricing model reflecting the value‐add of recently acquired products that are more powerful.

Jetlore, launched in 2014, is a provider of predictive artificial intelligence for retail companies able to comb through the data to help boost sales.

Hyperwallet distributes payments to those that sell online, and its purchase was centered around protecting the company's core business, enabling marketplaces to pay into PayPal accounts.

iZettle, an international mobile point-of-sale (POS) provider, is better known as the Square of Europe and has a large footprint. The relationship in PayPal has sounded alarm bells in Britain for being too dominant.

Simility, an AI-based fraud prevention specialist, round out a comprehensive list of new tools and services to PayPal’s all-star caliber lineup that can offer upgrades to businesses through a hybrid solution.

This positivity surrounding the sum of the parts will allow the company to build custom solutions for merchants of all sizes.

Augmenting a solid, stable business is a start-up inside of PayPal’s umbrella of assets with enormous growth potential called Venmo making up one of PayPal’s large future bets.

Venmo is a peer-to-peer payment app acquired by PayPal in 2013.

It is a favorite and mainstay of Millennial users who have gravitated towards this FinTech platform.

PayPal is intently focused on monetizing Venmo and the strategy is paying dividends with last quarter seeing 24% of Venmo traffic monetized which is up sequentially from 17% the quarter before.

Part of the increase in profits can be attributed to integrating Uber Eats into the platform, tacking on a charge for instant money transfers linked to bank accounts, and a Venmo debit card rolled out to the masses.

This innovation was not organic and in fact borrowed from FinTech Square, a great company led by Jack Dorsey, but the stock is incredibly volatile scaring off a certain class of investors.

Former CFO of Square Sarah Friar left her post at Square to boldly take on a CEO job at Nextdoor, a social network app, illustrating that an executive management job at Square is a golden credential able to springboard workers to a CEO job in Silicon Valley.

Shares of Square have doubled in 2018 and 2017, and the recent weakness in shares is more of a case that Square went too far over its skis than anything materially wrong with the company as well as a harsh macro climate that stung most of tech.

The price action can sometimes be breathtaking with 7% moves up and down all in a few days.

If you are searching for a slow grinder on the way up, then Microsoft (MSFT) would be a better tech play to plop your money into.

In my eyes, Microsoft is the most durable, all-terrain tech stock that will weather any type of gale-force squall in 2019.

For me, CEO of Microsoft Satya Nadella is the best CEO out there in the tech industry minus Jeff Bezos at Amazon (AMZN).

The Azure Cloud business is ferociously nipping at Amazon’s heels and Nadella has created a subscription-based monster out of legacy components left behind by failure Steve Ballmer who almost sunk Microsoft.

The stock has risen three-fold since Nadella took the reins, and I believe that Microsoft will soon surpass the trillion-dollar market capitalization level and end 2019 as the most valuable tech company.

Microsoft is indestructible because it’s a hybrid mashup of a growth company whose legacy products are also still delivering fused with a top-notch gaming division and a chance at catching the Amazon cloud.

The only company that can compare in terms of potency is Amazon.

Microsoft is not a one-trick pony like Apple, Facebook, Netflix and the way I see it, there are only two top companies in the tech landscape that will leave the last three companies I mentioned in the rear-view mirror.

Echoing Microsoft, PayPal has adopted a similar magical formula with its legacy core growing at 20% yet has growth levers with Venmo layered with targeted add-on companies that will enhance the firm’s offerings.

Moving forward, tech companies that have one or more growth drivers funded by a successful legacy base will become the ultimate tech stocks.

Playing on the same trope, Adobe (ADBE) is another company that has a software-based iron-clad legacy twinge to it and has the potential to spread its wings in 2019.

PayPal, Microsoft, and Adobe do not have the potential to double like Square or Roku next year, but they have minimal China trade war risk if things turn ugly, highly profitable with growing EPS, and are pure software companies whose CEOs put a massive emphasis on software development.

Expect this trio to melt up in 2019, and be prepared to strap on call spreads at advantageous entry points.

Another pure software service stock I love for 2019 is Twilio (TWLO) who I chronically use when I call an Uber to shuttle me around and take weekend getaways on Airbnb.

I would also lump Salesforce (CRM) into the discussion for stocks to buy in 2019 too.

Notice that all the stocks I favor next year are heavily weighted towards software and not hardware.

Hardware is going out of fashion at warp speed, the China tariffs just exacerbated this trend since most of the hardware supply chains are based in China.

Currently, the Mad Technology Letter has open positions in Microsoft and PayPal and if you are like most people online, you will probably use their service next year and more than a few times.

I Bet You've Never Heard of HubSpot

Tech Letter

If you are on the prowl for a cloud-based software company with super-charged growth that is still in the early stages, then I have the one for you.

HubSpot (HUBS) sells online marketing software.

They are the one-stop for CRM (client relationship management), email and sales automation, pretty landing pages, social media marketing, keyword research, website analytics, and lead generation tools all on one platform.

In general, HubSpot targets the SMEs (small and medium enterprises) and offers an intuitively designed product adding value to over 50,000 firms.

They even have a freemium package allowing newbies to sample the power the software tools possess.

This service starts its pricing at $50 per month for the basic package and it may not seem like much.

But then there are the add-ons that guarantee lead to a wave of additional upselling - a boon to quarterly revenue.

The initial price base is usually followed with price increases into the thousands because business needs more contacts to slot into its data silos and features to harness elaborate marketing campaigns.

This is all the cost of doing business and signals that HubSpot has the ability to carve out even more revenue than the starter packages they offer.

If companies are moaning about the boost in costs, I would lash back and say the added costs are warranted because of the enticing surge in productivity that scaling and better tools offer marketers leading to higher performance.

Plus, HubSpot isn’t the only cloud-based software company offering add-on tools to massage the customer’s demands.

These demands are multiplying by the day as marketing software becomes more complicated and sellers require hybrid-solutions to seal the deal with the end-buyer.

Sequentially, HubSpot’s revenue is expanding ferociously up 35% from last quarter.

On a 3-year basis, HubSpot has demonstrated it can uphold a furious pace of growth averaging a 42% growth rate during this time.

The company is still smallish with a market capitalization of $5 billion, but that won’t last for long as revenue expansion will reward shareholders with a higher share price.

Some of the positives from this marketing software is that its quality is highly competitive with other industry players such as Infusionsoft.

There will be certain companies that fit different software as marketing software is incredibly diverse.

The way that developers approach certain tools will naturally result in a different product altogether.

Specifically, I favor the centralization of HubSpot’s tools.

The holistic nature of HubSpot’s software makes the sum of the parts more valuable.

Online marketing is not just a one-day fly-by-night operation. Industry professionals would admit it’s an arduous grind. They must commit to one platform because HubSpot has made it hard to hop around.

Specifically, I like that HubSpot locks up companies with 1-year contracts instead of a rolling month-to-month contract that encourages companies to jump ship whenever there is an incremental upgrade elsewhere.

This has the effect of smoothing over revenue with the recurring billing helping the CFO plan the future allocation of the company and, most importantly, retaining its core customer base.

HubSpot also charges for technical support topping up its revenue by deciding to avoid giving this service for free. Professional guidance shouldn’t be free and, in digital marketing, you pay for what you get, period.

Catering towards its lower-end customers, HubSpot offers a comprehensive training and extensive support material making the platform easy to maneuver around from the get-go.

HubSpot is also integrated into Salesforce showing that it doesn’t have to be the star of the show all the time but can play the role of supporting actor just as well.

Revenue is revenue.

But I would personally go even further and claim that HubSpot’s functionality not only blows Infusionsoft’s, an online marketing competitor, out of the water, but it pushes omnipotent Salesforce (CRM) to its limits.

All of this means that HubSpot is predicted to surpass revenue of $500 million in 2018 after posting revenue of $375 million last year.

HubSpot doubled sales revenue in just two years.

Even though they are expanding from a small base and is blown out of the water by Salesforce on this metric, they are doing exactly what companies this size should be doing in the tech industry.

Stalling growth like over at Venice Beach at Snapchat’s (SNAP) headquarter is a bona fide red flag.

Accelerating revenue is the most pivotal deal-clincher for investors and separates the men between the boys.

Technology is one of the few industries in the economy that have a panoply of companies able to accomplish this feat.

Like it or not, online marketing is one section of tech that is not going away.

Have you realized the heavy stream of emails alerting you to different services and products?

There is a high chance those emails originated from HubSpot and this trend is not going away.

Marketing email volume will only climb until the cost of emails rises substantially which I highly doubt.

Technology is getting cheaper and so is the cost of running a business because of this technology.

Being able to offer poignant tools to its customer base has led to a heavy dose of R&D spending increasing 63% YOY. Even with these higher expenses, HubSpot was able to deliver a stellar EPS beat last quarter posting 17 cents when the consensus was a minuscule 5 cents, beating the forecast by more than three times.

The future looks rosy for this company because we are just in the early innings of the digital revolution for smaller companies.

They will have to migrate or die out.

Even the IT staff at the Mad Hedge Fund Trader has integrated HubSpot into our bevy of software tools and there are no complaints.

The bottom line is that HubSpot grew its customer base 40% YOY to over 52,500.

That is hard to beat.

On the downside, lower average revenue per customer is a concern. The 4% drop is not in tune to what growth companies should demonstrate but I believe the reacceleration of investment into its marketing tools will bear fruit and elevate this dragging number.

That being said, the $9,959 per customer is not a shabby figure at all, and a certain reversion to the mean was due to take place at some point. I would be worried if this drop happened at a much lower average number.

When you delve deeper into the numbers, it appears as if the culprit was HubSpot offering too many teaser starter packages to lure in new business.

Therefore, a slight pricing hiccup for this online marketing company is a one-off and can easily be rectified by upselling its pricing packages from a more advantageous starting point.

HubSpot doesn’t need to dig deeper into the lower end of the bush league and pull out all the nasties.

Moving forward, the roadmap looks fruitful as HubSpot plans to migrate from the smaller companies to higher end and more lucrative business boding well for margin expansion and future average revenue per customer.

This will feedback growing capital into its R&D to develop even more shiny tools for these more advanced marketers.

Shares of HubSpot are a little frothy at this point, and if shares pull back to $120, it would serve as a premium entry point.

Online marketing works well and new business will be up for grabs as a whole slew of companies pivot towards online marketing giving HubSpot a chance to slice off another massive chunk of business powering up annual revenue.

If you have a small business and are considering traversing into the world of online marketing, then visit HubSpot’s website at https://www.hubspot.com

November 29, 2018

Tech Letter

Mad Hedge Technology Letter
November 29, 2018
Fiat Lux

Featured Trade:

(SALESFORCE KNOCKS IT OUT OF THE PARK)
(CRM), (AAPL), (PYPL), (ADBE), (TWLO), (MSFT), (AMZN)

Salesforce Knocks It Out of the Park

Tech Letter

It’s been a grueling winter for tech stocks and countless number of positive earnings reports have fell on deaf ears.

Will the bloodletting stop?

Not if Salesforce (CRM) has something to say about it!

And if you thought that tech’s secular tailwinds had vanished, this latest earnings report confirmed that software stocks are alive and are as potent as ever.

That is why I have identified software stocks as the best tech play in the current late-stage economic cycle.

At the Mad Hedge Lake Tahoe Conference, I clearly telegraphed that companies do not pour capital into capex for large and risky projects at this late stage, they search for the additional incremental dollar by arming their staff with optimal and efficient software programs to squeeze more juice out of the lemon.

Salesforce is a great example of this.

Moving forward, Salesforce is on the A-team of the software squad, and ideally positioned to harpoon any whales that come near their boat.

Companies are looking to double down on software initiatives at this point which is another reason why annual IT budgets have shot through the roof.

I have met countless CEOs who guide thousands of staff throughout branches around the world and they told me that one of the big in-house additions has been integrating Salesforce as the main customer relationship management system deleting legacy systems of yore that have pooped out.

The switch bears fruits immediately with operations supercharged like a 5-star high school football prospect on his first month of ‘roids.

Simply put, everything just works a lot better with access to this software.

What CEO wouldn’t want that?

Even more salient is that Salesforce has promoted itself as the emblematic tech growth stock promising to smash $16 billion of annual revenue by next year.

I love that Salesforce commits to ambitious sales targets and always delivers the goods.

A talking head on a prominent financial TV show went on record saying that Apple is the key to the tech narrative perpetuating, I would completely disagree with this statement.

Everyone and his mother have absorbed that Apple iPhones sales have plateaued, I am honestly sick of hearing the same story in the news over and over again.

That is why Apple has been trying to morph into a software and service stock. They are doing a great job at it by the way.

The real conclusive acid test to the tech story are these high growth software stocks because they should be the ones outperforming at this stage in the economic cycle.

If companies tilted towards software like Salesforce, Twilio (TWLO), PayPal (PYPL), Microsoft (MSFT), and Adobe (ADBE), just to name a few of the crown jewels of software stocks, start laying eggs then I would admit the tech story is dead.

But it’s not.

Salesforce is poised to continue its ascent and that basically means quarterly sales growth in the mid-20s for the foreseeable future.

There is an addressable market of $200 billion and the pipeline is rich as ever could be.

Salesforce has really turned the corner with free cash flow and profitability. It was only a few years ago they were turning in heavy losses, but this new Salesforce will be even more profitable as the network effect makes the sum of the parts and each add-on cloud-based software tool even more valuable.

Companies just love the breadth of functionality that Salesforce offers and their pension for product enhancement is really owed to CEO Marc Benioff who never shies away from calling his peers out and never cuts corners.

In fact, Marc Benioff is one of the good guys in an increasingly rotting Silicon Valley, part of this has to do with him growing up as a local lad in Burlingame, just a stone throw from his newly built palatial Salesforce Tower gracing downtown San Francisco’s picturesque skyline.

Benioff has more skin in the game as a local and publicly supported Proposition C, effectively a bill that would charge a homeless tax on big earning corporations in San Francisco.

Benioff has also promised to fund any subsequent legal attack that attempts to unravel this homeless tax putting his money where his mouth is.

Benioff noted that he has seen no softness in the macro spending environment.

And even with all the crazy headlines spinning around in the media, there has been no material impact from any supposed peak or downshift in the business environment.

Not only is Salesforce dredging up SME deals at a fast rate, they are quickly targeting the big kahunas.

The number of deals generating more than $1 million was up 46% YOY in the third quarter.

The volume of $20 million-plus relationships is also growing significantly.

In the past quarter, Salesforce renewed and expanded a 9-figure relationship with one of the largest banks in the world.

Salesforce is able to upsell their cloud tools to customers and these firms eat up the Einstein built-in functionality that uses artificial intelligence to improve the existing software.

North America comprised 71% of total revenue which is why this software company will reap the rewards for any extension of this economic cycle because they are largely domestic and best in show.

Salesforce beat and raised its outlook calming the frayed nerves of investors looking to dump software stocks.

Just look at the billings growth that was anticipated at 19%, Salesforce smashed it by 8% coming in at 27%.

Not only are they scooping up new customers, but renewals have been just as robust.

The truth is that Salesforce can’t roll out enough cloud-based software products to meet the insatiable demand.

All of this backs up my thesis that software stocks will be the outsized winners of 2019.

The FANGs are not dead, I rather hold an Amazon (AMZN) or Apple (AAPL) long term if I had the choice.

But at this stage, investors should be piling into all the crème de la crème software stocks.

Avoid them at your peril.

November 19, 2018

Diary, Newsletter, Summary

Global Market Comments
November 19, 2018
Fiat Lux

Featured Trade:

(THE MARKET OUTLOOK FOR THE WEEK AHEAD, or MASS EVACUATION)
(SPY), (WMT), (NVDA), (EEM), (FCX), (AMZN), (AAPL), (FCX), (USO), (TLT), (TSLA), (CRM), (SQ)

The Market Outlook for the Week Ahead, or Mass Evacuation

Diary, Newsletter

I will be evacuating the City of San Francisco upon the completion of this newsletter.

The smoke from the wildfires has rendered the air here so thick that it has become unbreathable. It reminds me of the smog in Los Angeles I endured during the 1960s before all the environmental regulation kicked in. All Bay Area schools are now closed and anyone who gets out of town will do so.

There has been a mass evacuation going on of a different sort and that has been investors fleeing the stock market. Twice last week we saw major swoons, one for 900 points and another for 600. Look at your daily bar chart for the year and the bars are tiny until October when they suddenly become huge. It’s really quite impressive.

Concerns for stocks are mounting everywhere. Big chunks of the economy are already in recession, including autos, real estate, semiconductors, agricultural, and banking. The FANGs provided the sole support in the market….until they didn’t. Most are down 30% from their tops, or more.

In fact, the charts show that we may have forged an inverse head and shoulders for the (SPY) last week, presaging greater gains in the weeks ahead.

The timeframe for the post-midterm election yearend rally is getting shorter by the day. What’s the worst case scenario? That we get a sideways range trade instead which, by the way, we are perfectly positioned to capture with our model trading portfolio.

There are a lot of hopes hanging on the November 29 G-20 Summit which could hatch a surprise China trade deal when the leaders of the two great countries meet. Daily leaks are hitting the markets that something might be in the works. In the old days, I used to attend every one of these until they got boring.

You’ll know when a deal is about to get done with China when hardline trade advisor Peter Navarro suddenly and out of the blue gets fired. That would be worth 1,000 Dow points alone.

It was a week when the good were punished and the bad were taken out and shot. Wal-Mart (WMT) saw a 4% hickey after a fabulous earnings report. NVIDIA (NVDA) was drawn and quartered with a 20% plunge after they disappointed only slightly because their crypto mining business fell off, thanks to the Bitcoin crash.

Apple (AAPL) fell $39 from its October highs, on a report that demand for facial recognition chips is fading, evaporating $170 billion in market capitalization. Some technology stocks have fallen so much they already have the next recession baked in the price. That makes them a steal at present levels for long term players.

The US dollar surged to an 18-month high. Look for more gains with interest rates hikes continuing unabated. Avoid emerging markets (EEM) and commodities (FCX) like the plague.

After a two-year search, Amazon (AMZN) picked New York and Virginia for HQ 2 and 3 in a prelude to the breakup of the once trillion-dollar company. The stock held up well in the wake of another administration antitrust attack.

Oil crashed too, hitting a lowly $55 a barrel, on oversupply concerns. What else would you expect with China slowing down, the world’s largest marginal new buyer of Texas tea? Are all these crashes telling us we are already in a recession or is it just the Fed’s shrinkage of the money supply?

The British government seemed on the verge of collapse over a Brexit battle taking the stuffing out of the pound. A new election could be imminent. I never thought Brexit would happen. It would mean Britain committing economic suicide.

US Retails Sales soared in October, up a red hot 0.8% versus 0.5% expected, proving that the main economy remains strong. Don’t tell the stock market or oil which think we are already in recession.

My year-to-date performance rocketed to a new all-time high of +33.71%, and my trailing one-year return stands at 35.89%. November so far stands at +4.08%. And this is against a Dow Average that is up a miniscule 2.41% so far in 2018.

My nine-year return ballooned to 310.18%. The average annualized return stands at 34.46%. 2018 is turning into a perfect trading year for me, as I’m sure it is for you.

I used every stock market meltdown to add aggressively to my December long positions, betting that share prices go up, sideways, or down small by then.

The new names I picked up this week include Amazon (AMZN), Apple (AAPL), Salesforce (CRM), NVIDIA (NVDA), Square (SQ), and a short position in Tesla (TSLA). I also doubled up my short position in the United States US Treasury Bond Fund (TLT).

I caught the absolute bottom after the October meltdown. Will lightning strike twice in the same place? One can only hope. One hedge fund friend said I was up so much this year it would be stupid NOT to bet big now.

The Mad Hedge Technology Letter is really shooting the lights out the month, up 8.63%. It picked up Salesforce (CRM), NVIDIA (NVDA), Square (SQ), and Apple (AAPL) last week, all right at market bottoms.

The coming week will be all about October housing data which everyone is expecting to be weak.

Monday, November 19 at 10:00 EST, the Home Builders Index will be out. Will the rot continue? I’ll be condo shopping in Reno this weekend to see how much of the next recession is already priced in.

On Tuesday, November 20 at 8:30 AM, October Housing Starts and Building Permits are released.

On Wednesday, November 21 at 10:00 AM, October Existing Home Sales are published.

At 10:30 AM, the Energy Information Administration announces oil inventory figures with its Petroleum Status Report.

Thursday, November 22, all market will be closed for Thanksgiving Day.

On Friday, November 23, the stock market will be open only for a half day, closing at 1:00 PM EST. Second string trading will be desultory, and low volume.

The Baker-Hughes Rig Count follows at 1:00 PM.

As for me, I'd be roaming the High Sierras along the Eastern shore of Lake Tahoe looking for a couple of good Christmas trees to chop down. I have two US Forest Service permits in hand at $10 each, so everything will be legit.

Good luck and good trading.

John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader

November 16, 2018

Diary, Newsletter, Summary

Global Market Comments
November 16, 2018
Fiat Lux

Featured Trade:

(RISK CONTROL FOR DUMMIES),
(SPY), (AMZN), (TLT), (CRM), (VXX)

November 6, 2018

Tech Letter

Mad Hedge Technology Letter
November 6, 2018
Fiat Lux

Featured Trade:

(THE GREAT TECH COMPANY YOU’VE NEVER HEARD OF)
(TWLO), (ROKU), (MSFT), (SQ), (AMD), (CRM), (SEND)

The Great Tech Company You've Never Heard Of

Tech Letter

As volatility rears its hideous head, it’s not necessarily the best time to catch a falling knife as tech companies have been scrutinized harshly lately.

But the market is always right, and waiting for them to drop into your lap will serve you in good stead, even more so for the higher beta tech names that can behave more petulant than a little child.

Roku (ROKU), AMD (AMD), and Square (SQ) are a few of these smaller names with prodigious growth stories backed by secular tailwinds.

These up-and-comers regularly experience 5-7% setbacks, while sturdier names such as Microsoft (MSFT) pull back 1-2% allowing you to sleep soundly at night.

Another influential company taking the liberty to infiltrate the backend of every global and local company is no other than communications software company Twilio (TWLO).

Many of you might not have heard of them, and it doesn’t sound like such a sexy company right off the bat but I am sure you have heard of companies such as Uber, Lyft, and Airbnb.

Why do I mention these three private tech companies that are on the verge of going public next year?

Because this trio of unicorns are all powered by Twilio’s communication technology that is best of breed in their genre of cloud software.

More specifically, Twilio is a platform as a service (PaaS) firm offering programmatic phone call functions, can automate sending and receiving text messages, and performs other communication functions using its web service APIs.

When your Uber driver calls asking you to reveal yourself out of a concrete apartment block or your lavish gated community, this is all facilitated by Twilio’s technology.

At the recent Twilio Signal Conference in San Francisco, Twilio indicated that its latest “call center in a box” product called Flex was up and running after announcing it this past March.

Prior to Twilio’s roll-out, this type of call center functionality was only reserved for the Fortune 500 companies that could afford expensive software to serve its minions of customers.

The small guy was left out in the cold as usual.

Twilio has reshaped the call center and, at $1 per hour or $150 per month, has made itself a gamechanger for SMEs who don’t have the manpower or capital to fund exorbitant back-end operations.

Twilio is really going after anyone with a light or bulky-shaped wallet as you see from their all-star lineup of customers. U-Haul, real estate website Trulia, and data analytic firms Scorpion and Centerfield are just a few of their customers proving the incredible flexibility of the software.

It’s not a shock that this stock has gone ballistic in 2018 surging over 200% and I must admit, investors need to wait for this molten hot stock to cool down.

But how can you blame a company that habitually tears apart any expectation of them devouring expectations because of its super growth model and rapid broad-based adoption?

From the fourth quarter of last year, revenue accelerated to 48% YOY and Twilio followed that up with a blistering 54% YOY quarter.

Then they pulled a shocker guiding down only expecting 35% to 37% growth but dismantled any whiff of jangling investors' nerves by posting another quarterly growth rate of 54%.

If you average out the three-year sales growth rate, few can topple the 57% Twilio has registered.

Performance has been fantastic, to say the least, and Flex could be the product that cements their industry lead and widens the moat around them.

Airbnb, Uber, and Lyft will avoid tinkering with the back end of their operations before their 2019 IPOs boding well for Twilio who are on a hot streak scoring a series of big contracts.

Twilio has been embroiled in further recent stock weakness as they gobbled up SendGrid (SEND), a mass-email marketing software service, for $2 billion.

SendGrid is growing sales at a lower rate in the mid-30%, and this move will add to top line growth.

Synergies from this acquisition are numerous and Twilio will be able to cross-sell to SendGrid’s customers who can apply other communication tools to use.

Telecommunication product in the past was truly unaffordable for the bulk of companies and now that Twilio can bring in all the smaller companies, the SME landscape is poised to change.

Software is becoming powerful to the point where one person living in a basement will have the access to a software that could convince customers a 100-man team is putting this product altogether.

Flex allows customers to personalize this contact-center-in-a-box software for each specification.

It can even quickly integrate into CRM platforms like Salesforce (CRM) which is a wildly popular interface for companies around the world.

Twilio Autopilot, Twilio’s oral conversational AI tool, offers machine learning bots who deliver automated voice-activated functions to customers.

Companies can easily type what they want bots to orate to customers and simply paste it into the code with ease and minimal hassle.

Twilio’s updated payment capabilities offer a new API for building payment experiences by contacting center agents who can now securely accept credit card payments from customers over the phone without the agents ever getting a whiff of the actual numbers.

Effectively, this allows any business in the world to professionalize their communications and backend department to a point they could have never imagined a few years ago.

The saying rings true when industry experts note that it’s the best time to become a billionaire and worst time to become a millionaire because the power of leveraging these robust software programs could potentially fuel the rapid rise of anyone in the world who will eat everybody else’s lunch.

If you break down the numbers, most companies are still holding on to their legacy systems of yore.

Being saddled with outdated hardware and software will doom companies going forward as the explosion of brilliant software modernizes companies in a few clicks of the mouse.

Twilio has added another 15,000 developers to the 35,000 already on the books and the purchase of SendGrid can no doubt be attributed partially to a talent grab of developers who have deep experience building communication-based products.

These types of developers don’t grow on trees.

Last year saw Twilio bring in about $400 million in sales and I am modeling for around $1 billion in sales by 2021.

This $7 billion market cap tech darling has a long runway ahead of itself and investors looking for high-volatility, high-reward stocks can tuck this one away in their sheath.

With earnings coming up and an already 200% plus pop this year, there will be better entry points into this ebullient company if investors are patient.

Wait for a dip to get in on the best communication-based cloud company on the market.

November 5, 2018

Diary, Newsletter, Summary

Global Market Comments
November 5, 2018
Fiat Lux

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