The TC article is light on details compared to the actual call and 10-K.
Uber was 12% of total rev at the start of 2016, and 17% later on. WhatsApp was the next largest at 9% for the year. Concentration falls off from there, with the 3rd largest customer at 2%.
Twilio's initial (unamended) S-1 filing uses Uber as a customer case study [1]. They called out WhatsApp as a business risk given that they were and are a variable account (15% of their business at the time). Uber was not, potentially because they're a Base Customer Account, but as noted in in the 10-K [2]: "its usage historically has significantly exceeded the minimum revenue commitment in its contract, and it could significantly reduce its usage of our products without notice or penalty."
To me, that seems like an excelent risk profile, and no reason to sell. Uber seems to have a stench to it lately, and to be free of that large customer influncing your growth is a net positive. But stocks react in real time.
You know where I am nearly every single time I get an Uber or Lyft? Right outside my building, where my phone is hanging onto a Wi-Fi connection that won't work from there. Maybe it's not as common as it is in my life, but SMS seems essential until phones figure out how to deal with the Wi-Fi limbo state.
This is very accurate. I've gotten in the habit of manually killing my phone's WiFi as I leave my apartment and start walking down the hall calling a Lyft/Uber, and the same when outside my office. This remains an unsolved problem.
It really isn't. It'd be trivial to allow mobile data to always supplement wifi data. There are apps that do this already ([1] and [2]), and some phones have the option as well (either stock or as a ROM). The problem are cellular data caps, nobody wants to blow their caps by using cellular when they could be using wifi only. There is no way for wifi to know when you're about to lose coverage, or have spotty coverage; the only way around it is to always have the mobile antenna connected to towers so it can take over. But that costs money, many mobile phone companies even disable these options on their phones to reduce congestion in their towers ([3], though it may be out of date now).
One day we might solve this problem, if we're ever able to pressure phone companies into reinvesting into their infrastructure instead of their investors.
Windows Phone has a nice manual workaround to this. When you disable WiFi, you can say for just 30m or an hour or four. Excellent because I never remember I've disabled WiFi until I've eaten a ton of mobile data. Of course, it's still a poor substitute for not having proper switching.
It's not an unsolved problem, it's exactly what the iPhone's Wi-Fi Assist is for.
The problem is that Apple botched the roll out and everybody freaked out and complained about their iPhone eating their data plan and driving their phone bill to $2000.
There's an app that's basically IFTTT for phones. Let's you set your phone to do things like silence itself or disengage wifi based on location. For the life of me I can't remember the name but it's out there and hopefully someone replies with it.
I really thought it was just me and my network. I disable my wifi daily starting my commute as Spotify chokes on loading songs as I walk away and lose the connection. I've been searching for a way to make it drop faster but no dice yet.
While driving for Lyft, dropping someone a good ways up Beechwood Canyon, I received a text message "You've fallen off the Lyft network, please drive to where you have better data coverage"
This is very much the opposite for me (and quite common in Argentina).
I've no signal at home. Can't receive SMS or calls. So I need to leave my phone next to the window to get the SMS. And then, generally, wait, since verification SMSs take from minutes to hours to reach.
I wish companies abroad would stop taking instant SMS for granted. It's also the stupidest second-factor you can ask me for: if I ever lose my phone, then I lost my number too.
I get get Wi-Fi from home up to about half a block down my road. Then there's the cafes and stuff, and of course, 4G.
It's also the stupidest second-factor you can ask me for: if I ever lose my phone, then I lost my number too.
This is a known probem, and most good 2FA services have solutions. For example, Google offers a small number of "recovery codes" you can store for times when your 2FA device isn't available. https://support.google.com/accounts/answer/1187538?hl=en
> if I ever lose my phone, then I lost my number too.
The assumption is that your phone is PIN-protected, and you can contact your phone operator to get the old SIM blocked and a new SIM issued. This breaks down when it comes to prepaid though.
Of course there was a massive online campaign when it was released last year to turn it off, because Apple was costing you money because the phone might use more 3G data! People... [in AU at least you pay by the GB for data]
you then have the option to enable "Aggressive Wi-Fi to Cellular handover"
> It just artificially reduces the WiFi RSSI (received signal strength indication) to encourage the WiFi state machine to decide to switch the connection from WiFi to cellular network.
Anecdotally, I have had fewer headaches with the phone holding on to poor wifi-signals since I enabled this. Ideally the phone would handle this in a smarter way, e.g., by monitoring the strength of both the wifi and data signals and switching to whichever is likely to have the least packet loss.
As someone who works in a building with four underground stories, this cuts both ways: there are plenty of times when I've had seemingly zero bars and full wifi yet no ability to conjure network access until I manually disable cellular data. Why it's trying to prioritize cell over wifi in the first place, god only knows.
I turn it off when I get into my elevator because if not it'll be in a 1x limbo state for about five minutes, even once I am completely out of the building.
Phone apps in general have a huge problem with extremely high timeouts and no user-facing cancel/retry buttons.
My intuition for whether a request that's not done yet is ever going to complete seems to be much better than what's written into most apps. It's really annoying when I have to entirely kill and reopen the app, rather than just have that one operation retried.
I've set my home access point to disconnect the client when signal drops below -78. It means it might spend more time on cellular, but at least I avoid that limbo state at the front of my house.
Can someone who understands the problem summarize why switching over to another channel dynamically is so difficult?
My naive intuition would just say that if the wifi connection suddenly degrades, the networking stack should just automatically switch over and try cellular -- are there complications?
The way it works is that following: to check if wifi is in range, the only thing you can do is ping 'arthur you there?' to the router and wait for a response.
That wait time, unfortunately, is long on human timescales. Also, there's the chance your ping was lost, so your phone tries at least a few times before giving up.
I seem to have missed it in the article and from reading the comments here, but what exactly is Uber's reason for moving away from Twilio? Are they building their own comms & SMS infrastructure in house? Are they big enough now to work out bulk deals with Telcos in each country? Are they spreading their load across multiple comms providers?
In any case, I would have thought the move would have been planned well ahead, giving Twilio time and notice to try and entice other huge customers, possibly even Uber's rivals to step in and take up the capacity?
Ex-phone company employee and someone who set up his own personal voip service (Asterix server) with DID & Termination for dirtcheap "cell phone" service here:
It's such an easy thing to do, but requires a lot of coordinated effort to do correctly. A company of Uber's size definitely should be in-housing this kind of operation and so should anyone with budget to hire engineers and a competent ops team. Heck, the hedge fund I worked at had a dedicated telephony team.
It's not sexy technology, so nobody wants to do it and that's where Twilio makes all of their money. Expensive, but convenient.
I would disagree. Twilio should be able to do it better and less expensively than Uber. The only think I can think of is Twilio refused to lower its prices or there's a glaring deficiency that Twilio is unable or unwilling to fix.
The folks old/experienced enough to know better are basically all retired and for various reasons don't care.
On the phone side of things, they generally all retired with great pensions/retirement plans and never had to get too deep in the computer side of things. On the computer side of things, their packet-switched networks had different enough requirements from circuit-switched that it evolved separately and who wanted to deal with all that regulation anyway?
There's still a fair bit of overlap between internet routing protocols and telephone routing (and even postal routing).
Now that content and deliverability requirements have changed for Internet users, we're having to solve old problems again and the infrastructure is becoming more the same.
All the recent work and talk about new transport protocols for VoIP? Guess what... Just about all of your TelCos basically had voip in their infrastructure back in the mid-90s and nobody noticed the difference. Your PSTN lines connected to your local and and they connected to each other via IP to share lines (and massively save costs). Look up FXO/FXS gateways if you're interested. Some of you have this in your homes on a small scale.
Is Twilio really leveraging low-level connectivity though, getting the cost benefit of "direct to telco"?
If I search around, it sounds like they use bandwidth.com as their upstream provider. Bandwidth.com released their own api, with lower pricing: http://dev.bandwidth.com/
I also don't see much high level difference between Twilio and their other competitors like Plivo, Nexmo, etc.
Especially for simple things like SMS, it would seem to make sense for large users to have a thin shim layer that lets them load balance across providers. Negotiation would be pretty easy when you can just turn the dial to show that you're serious. This field feels very close to being a commodity.
Twilio has a better consumer facing package. And it's in a really good place right now with brand name. If they leverage this well, they should be able to cement the market with enterprise just as well as they've done with smaller companies.
Love the spin the media is putting on Twilio's earnings call. Uber load balances its traffic across multiple providers. Moving their traffic off Twilio shouldn't be seen as a signal that they're distancing themselves from Twilio. Twilio has a model that's hard to predict long-term revenue. This will continue until they figure out how to get more high value companies to sign contracts.
As mentioned in the TechCrunch article, this is precisely Twilio's problem.
Revenue concentration is incredibly dangerous for long-term prospects of any operating business. Twilio needs to broaden their revenue base to stabilize it, not find a few more whales that will dictate their future.
Problem is that it's the whales that make them a $3 billion company. Snag one Uber or Facebook and that's worth about a million small SaaS companies (I actually don't think that's an exaggeration). Yes, if they leave you're in deep trouble, but that's the business they're in. To acquire the number of smaller companies that would account for the number of SMS messages that Whatsapp sends would require so much time I think this stock would trade to zero long before that would ever happen, if it were even possible to do.
Twilio's concentration problem is different from their volatility problem with these big players if there isn't a long-term contract with minimums in place.
The revenue concentration problem is well documented and I don't think we add much to that discussion.
The revenue volatility problem is inherent to how short-lived their actual product is - SMS and phone calls are ephemeral, measured in seconds to minutes. As the result, without contracts, the only thing that is stopping the outbound traffic from flip flopping providers are some business rules baked into the implementation. (Inbound traffic has phone number lock-in, which is why we don't change cell providers on a weekly basis.)
For Uber, that business logic is pretty straightforward on their largest volume SMS, making multi-vendor flip flop based on rates fairly easy.
Long term contracts with guaranteed minimums will absolutely protect Twilio from this volatility. It's not lock-in or concentration, but rather way to have more predictable revenues and manage working capital.
In parallel to trying to get long term contracts/guaranteed mins, Twilio should be (and is) diversifying their customer base.
I believe they're doing that. They've introduced two new products out of beta these past two weeks. My hunch is that they'll continue to find paths to long-term and more predictable revenue to mitigate the anxiety we're seeing with the stock. A lot of people don't really understand what Twilio does and its value proposition within the investment community. It's tough to sell this as a viable investment option if you don't truly understand what the platform does.
I do think this is just temporary. They'll bounce back. It'd be a good time to double down on the stock.
I'll venture on the aggressive side and say they are even less than a commodity.
Communication companies like these are inherently highly competitive. Each one only cover some part of the world (for instance, SMS to USA and canada).
When you have a big company operating in multiple continents, like Uber, you MUST have multiple service providers to cover all your customers (and it will also come with costs savings so you really have maximum incentive to diversify).
Once you have diversified to 3+ providers, you mastered the abstraction good enough to plug them in and out. The next logical step is to take advantage of that to put providers in a same zone in competition with each other.
They're a SaaS play with no lock-in. Which is great for businesses who want to use Twilio on a small scale then grow strategically. Sucks for Twilio because they want to have as much predictable revenue as possible.
As a hobby, I have been studying "oversold" stocks for the past month and am starting to see that the market is prone to over reactions. AMD and RTTR for example are stocks that were drastically punished for no good reason. I am assuming here is where Warren Buffet like folks buy. That said Twilio does seem to have a reason to tumble. The risk of losing WhatsApp also is too high for this valuation
I think your assumption on Buffett is wrong. Buffett finds companies that have a significant competitive advantage (moat) and prefers stable, blue chip, traditional brand names, preferably with dividends, that are most likely to just keep growing. And then from that group, he finds the best pricing in industries he understands to be good businesses. Buffett wouldn't touch a company like AMD, punished or not. When Buffett does it right, he's specifically mitigated the risk of a stock getting punished well ahead of earnings.
I'm interested to learn what you've found on oversold stocks though - have anything written up?
I think there's maybe something tradable from over-reactions to short-term news, but buying on an "over-reaction dip" is fraught with peril that it's just the beginning of a prolonged fall.
I bought a bunch of UAL after the UA3411 incident came out and sold the last of it today for a tidy profit. Now, if their earnings had been lackluster or worse, that trade could have gone poorly.
I have also made money in aggregate on 3x oil ETFs, but the swings can be long and deep.
The reason companies move away from SMS is because they are using it wrong. SMS is for two-way communication and not notifications.
I have a small company that is having great success with a niche product that uses SMS as a two-way customer communication platform. SMS is perfect for customer service (universal, no app to install), but it hasn't caught on yet.
SMS notifications are like noreply@ email addresses.
Perhaps I'm not a typical person but I strongly prefer SMS for my one-way notifications from service providers for appointments I've set up. I don't want to have to answer a call to hear a recorded voice tell me about the appointment or, worse, actually respond to a real human. E-mail is okay but I don't check it often. For me SMS message notifications fit just right.
- My local garage sent me an SMS notification when my car's MOT was due. The notification included the number to call to book it in.
- My bank sends me SMS notifications if my current account goes overdrawn, giving me time to log in to their app or online to transfer funds before I incur any charges.
- A couple of the local taxi services send SMS notifications when my taxi is arriving (this isn't Uber - it's made it to Cambridge but they have very few vehicles so it's hopeless).
These are all perfectly valid uses of SMS for one way communication/notification, or communication where the response isn't another SMS.
I'm really not. I see the impact 2-way texting is having on hundreds of retail stores everyday. It is a paradigm shift that seems obvious once you experience it.
I mean it's bad news, but they may probably lose 12% of their business vs a 30% stock price drop while still hitting estimates (admittedly at the low end) for revenue this quarter. The price should definitely drop, but why is this not an overreaction?
Stock price is about expectations for the future. The last quarter only matters insofar as it offers insight into the future development of a business. And that 30% drop is also not necessarily about a single issue like Uber leaving.
TWLO guided lower for Q2, coming in below expectations on both profit and sales. Furthermore, Uber may be 12% of their business now, but that company is growing, and this means the market expected TWLO to make even more money with them in the future, which is not happening anymore. This also highlights how concentrated TWLO's business is, and how quickly they can lose a meaningful chunk of their revenue. Lack of diversification means more risk, and maybe the market had not fully priced that in.
Might be an overreaction, might not. If Uber dropping out is a leading signal for "major clients aren't getting value out of their business relationship with Twilio", then that's a major problem going forward.
It's great for those that targeted their puts at the $25 range and definitely for those that have been sitting on the sidelines waiting to jump in. It's not going to stay down here for long. I agree. Total overreaction.
Readit News
Uber was 12% of total rev at the start of 2016, and 17% later on. WhatsApp was the next largest at 9% for the year. Concentration falls off from there, with the 3rd largest customer at 2%.
Twilio's initial (unamended) S-1 filing uses Uber as a customer case study [1]. They called out WhatsApp as a business risk given that they were and are a variable account (15% of their business at the time). Uber was not, potentially because they're a Base Customer Account, but as noted in in the 10-K [2]: "its usage historically has significantly exceeded the minimum revenue commitment in its contract, and it could significantly reduce its usage of our products without notice or penalty."
[1] https://www.sec.gov/Archives/edgar/data/1447669/000104746916...
[2] https://www.sec.gov/Archives/edgar/data/1447669/000104746917...
One day we might solve this problem, if we're ever able to pressure phone companies into reinvesting into their infrastructure instead of their investors.
[1]: http://speedify.com/mobile-vpn
[2]: https://play.google.com/store/apps/details?id=it.opbyte.supe...
[3]: http://forums.androidcentral.com/samsung-galaxy-s5/402722-ho...
Also helps me avoid worrying about spying... work has a right to monitor (blue coat) all comms so better to keep work and home stuff separate.
The problem is that Apple botched the roll out and everybody freaked out and complained about their iPhone eating their data plan and driving their phone bill to $2000.
On Android, if you unlock the hidden Developer Options, there is a toggle for "Aggressive WiFi to mobile handover".
But I wonder why the setting is hidden and not a default.
I've no signal at home. Can't receive SMS or calls. So I need to leave my phone next to the window to get the SMS. And then, generally, wait, since verification SMSs take from minutes to hours to reach.
I wish companies abroad would stop taking instant SMS for granted. It's also the stupidest second-factor you can ask me for: if I ever lose my phone, then I lost my number too.
I get get Wi-Fi from home up to about half a block down my road. Then there's the cafes and stuff, and of course, 4G.
This is a known probem, and most good 2FA services have solutions. For example, Google offers a small number of "recovery codes" you can store for times when your 2FA device isn't available. https://support.google.com/accounts/answer/1187538?hl=en
The assumption is that your phone is PIN-protected, and you can contact your phone operator to get the old SIM blocked and a new SIM issued. This breaks down when it comes to prepaid though.
Of course there was a massive online campaign when it was released last year to turn it off, because Apple was costing you money because the phone might use more 3G data! People... [in AU at least you pay by the GB for data]
You can tap on About Phone a few times to enable Developer mode.
I've gotten to the point where I'll manually turn off WiFi as soon as I set foot outside my front door. It should be automatic.
https://www.howtogeek.com/129728/how-to-access-the-developer...
you then have the option to enable "Aggressive Wi-Fi to Cellular handover"
> It just artificially reduces the WiFi RSSI (received signal strength indication) to encourage the WiFi state machine to decide to switch the connection from WiFi to cellular network.
https://android.stackexchange.com/questions/90250/what-does-...
Anecdotally, I have had fewer headaches with the phone holding on to poor wifi-signals since I enabled this. Ideally the phone would handle this in a smarter way, e.g., by monitoring the strength of both the wifi and data signals and switching to whichever is likely to have the least packet loss.
My intuition for whether a request that's not done yet is ever going to complete seems to be much better than what's written into most apps. It's really annoying when I have to entirely kill and reopen the app, rather than just have that one operation retried.
Deleted Comment
My naive intuition would just say that if the wifi connection suddenly degrades, the networking stack should just automatically switch over and try cellular -- are there complications?
That wait time, unfortunately, is long on human timescales. Also, there's the chance your ping was lost, so your phone tries at least a few times before giving up.
Dead Comment
In any case, I would have thought the move would have been planned well ahead, giving Twilio time and notice to try and entice other huge customers, possibly even Uber's rivals to step in and take up the capacity?
It's such an easy thing to do, but requires a lot of coordinated effort to do correctly. A company of Uber's size definitely should be in-housing this kind of operation and so should anyone with budget to hire engineers and a competent ops team. Heck, the hedge fund I worked at had a dedicated telephony team.
It's not sexy technology, so nobody wants to do it and that's where Twilio makes all of their money. Expensive, but convenient.
Deleted Comment
These days I don't even buy phone credit anymore. I just make calls on my phone using Skype - It's so much cheaper.
On the phone side of things, they generally all retired with great pensions/retirement plans and never had to get too deep in the computer side of things. On the computer side of things, their packet-switched networks had different enough requirements from circuit-switched that it evolved separately and who wanted to deal with all that regulation anyway?
There's still a fair bit of overlap between internet routing protocols and telephone routing (and even postal routing).
Now that content and deliverability requirements have changed for Internet users, we're having to solve old problems again and the infrastructure is becoming more the same.
All the recent work and talk about new transport protocols for VoIP? Guess what... Just about all of your TelCos basically had voip in their infrastructure back in the mid-90s and nobody noticed the difference. Your PSTN lines connected to your local and and they connected to each other via IP to share lines (and massively save costs). Look up FXO/FXS gateways if you're interested. Some of you have this in your homes on a small scale.
If I search around, it sounds like they use bandwidth.com as their upstream provider. Bandwidth.com released their own api, with lower pricing: http://dev.bandwidth.com/
I also don't see much high level difference between Twilio and their other competitors like Plivo, Nexmo, etc.
Especially for simple things like SMS, it would seem to make sense for large users to have a thin shim layer that lets them load balance across providers. Negotiation would be pretty easy when you can just turn the dial to show that you're serious. This field feels very close to being a commodity.
https://exponents.co/twilio-market-opportunities-risks/
when was it written? it's frustrating there is no date on the post.
So they can further concentrate their revenues? I'm sorry, no, that's exactly the worst thing they can do. I'll refer you to this piece:
https://www.inc.com/magazine/201206/jason-fried/huge-account...
As mentioned in the TechCrunch article, this is precisely Twilio's problem.
Revenue concentration is incredibly dangerous for long-term prospects of any operating business. Twilio needs to broaden their revenue base to stabilize it, not find a few more whales that will dictate their future.
The revenue concentration problem is well documented and I don't think we add much to that discussion.
The revenue volatility problem is inherent to how short-lived their actual product is - SMS and phone calls are ephemeral, measured in seconds to minutes. As the result, without contracts, the only thing that is stopping the outbound traffic from flip flopping providers are some business rules baked into the implementation. (Inbound traffic has phone number lock-in, which is why we don't change cell providers on a weekly basis.)
For Uber, that business logic is pretty straightforward on their largest volume SMS, making multi-vendor flip flop based on rates fairly easy.
Long term contracts with guaranteed minimums will absolutely protect Twilio from this volatility. It's not lock-in or concentration, but rather way to have more predictable revenues and manage working capital.
In parallel to trying to get long term contracts/guaranteed mins, Twilio should be (and is) diversifying their customer base.
I do think this is just temporary. They'll bounce back. It'd be a good time to double down on the stock.
Communication companies like these are inherently highly competitive. Each one only cover some part of the world (for instance, SMS to USA and canada).
When you have a big company operating in multiple continents, like Uber, you MUST have multiple service providers to cover all your customers (and it will also come with costs savings so you really have maximum incentive to diversify).
Once you have diversified to 3+ providers, you mastered the abstraction good enough to plug them in and out. The next logical step is to take advantage of that to put providers in a same zone in competition with each other.
I'm interested to learn what you've found on oversold stocks though - have anything written up?
I bought a bunch of UAL after the UA3411 incident came out and sold the last of it today for a tidy profit. Now, if their earnings had been lackluster or worse, that trade could have gone poorly.
I have also made money in aggregate on 3x oil ETFs, but the swings can be long and deep.
I have a small company that is having great success with a niche product that uses SMS as a two-way customer communication platform. SMS is perfect for customer service (universal, no app to install), but it hasn't caught on yet.
SMS notifications are like noreply@ email addresses.
- My local garage sent me an SMS notification when my car's MOT was due. The notification included the number to call to book it in.
- My bank sends me SMS notifications if my current account goes overdrawn, giving me time to log in to their app or online to transfer funds before I incur any charges.
- A couple of the local taxi services send SMS notifications when my taxi is arriving (this isn't Uber - it's made it to Cambridge but they have very few vehicles so it's hopeless).
These are all perfectly valid uses of SMS for one way communication/notification, or communication where the response isn't another SMS.
I mean it's bad news, but they may probably lose 12% of their business vs a 30% stock price drop while still hitting estimates (admittedly at the low end) for revenue this quarter. The price should definitely drop, but why is this not an overreaction?
TWLO guided lower for Q2, coming in below expectations on both profit and sales. Furthermore, Uber may be 12% of their business now, but that company is growing, and this means the market expected TWLO to make even more money with them in the future, which is not happening anymore. This also highlights how concentrated TWLO's business is, and how quickly they can lose a meaningful chunk of their revenue. Lack of diversification means more risk, and maybe the market had not fully priced that in.
http://www.investopedia.com/terms/o/overreaction.asp