Twilio Acquires Segment for $3.2B

Monday, Oct 19th 2020

Update

Twilio, a Titan Flagship holding and what we consider to be the "Amazon (Web Services) of cloud communications," just announced a home run deal. It will acquire customer data platform startup Segment for $3.2 billion in stock.

We love this deal for three reasons:

  1. It provides a single view of a customer across channels for more effective engagement.
  2. It forms a foundational data element fueling Twilio’s Engagement Cloud.
  3. It enables businesses to delight their customers with personalized, timely, and impactful communication.

“Data silos destroy great customer experiences. Segment lets developers and companies break down those silos and build a complete picture of their customer. Combined with Twilio's Customer Engagement Platform, we can create more personalized, timely and impactful engagement across customer service, marketing, analytics, product and sales.” Jeff Lawson, co-founder and CEO of Twilio

Quick Backdrop on Twilio

  • The company builds application programming interfaces (APIs) that software developers use to integrate all sorts of communications into their products.
  • For example, companies like Lyft use Twilio to send automated text messages, emails, and other communications to their users. Instead of having to build every communication tool from scratch, Lyft's software engineers write a few lines of code to connect to Twilio's APIs, and voila.

Why We Think It's a Home Run Deal

The businesses that deliver the best experiences are the ones that know their customers well and use customer data to provide more relevant interactions. However, wrangling these customer insights is extremely difficult as the information is typically spread across disparate systems and functions throughout an organization.

By combining the market leaders in cloud communication (Twilio) and customer data platforms (Segment), Twilio can now alleviate this pain for businesses by delivering a single, unified view that helps companies better understand their customers in order to engage more effectively.

TWLO is up +3% today on the news, a sign of how positive the market feels about this acquisition given the deal will be done as an all-stock transaction (~7% dilution for TWLO).

This deal marks Twilio becoming a "4-bagger" for Titan clients, our largest winner in firm history. It's a good reminder of the importance in sticking to one's investment thesis through volatility (as we did).

Quick Recap of Our History with TWLO

  • We first initiated in TWLO for Titan Flagship clients in August 2019. Since then, it has been quite a roller coaster ride.
  • Within just a few months of buying the stock, we were down ~40% as a major technical rotation occurred out of cloud software stocks.
  • We put out a research update at the time, called "We Think Twilio Is Oversold," outlining why we thought the sell-off was an overreaction and a major buying opportunity for long-term investors to own part of this cloud communications leader.
  • The stock is up over 4x since then as operational execution continues to be superb, from the SendGrid deal integration to organic growth during the pandemic to this Segment acquisition.

We remain bullish.

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