Twilio ( TWLO -1.37% ) and Unity ( U -2.65% ) Both Twilio and Unity reached their peak values in 2021 amid a surge in buying activity for growth and meme stocks. Twilio’s stock price soared to $443.49 in February, a remarkable increase of 2,857% from its IPO price of $15 in 2016. Similarly, Unity’s stock price reached $201.12 in November, demonstrating a significant rally of 287% from its IPO price of $52 in 2020.
However, as of now, Twilio is trading at around $60 and Unity at $15. The value of both stocks has dropped due to slowing growth and increasing interest rates affecting their high valuations. Therefore, should investors who go against the crowd still consider purchasing these declining stocks?
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What is the current status of Twilio?
Twilio’s cloud-based platform handles text messages, voice calls, videos, and more for mobile applications. Instead of developing these functionalities from the beginning, which can be problematic, time-consuming, and challenging to expand, developers can easily integrate Twilio’s features into their apps by adding a few lines of code.
Twilio charges customers fees based on their usage of the platform. The technology operates in the background, allowing customers to access it seamlessly. Airbnb Visitors are able to get in touch with their hosts. Lyft Riders have the ability to communicate with their drivers, and businesses can also send verification messages through text for their mobile applications.
Twilio experienced significant growth due to the fast expansion of the mobile application market. Between 2016 and 2022, its revenue increased steadily at an impressive compound annual growth rate (CAGR) of 55%. This growth was fueled by both its natural growth and the purchase of smaller businesses.
However, in 2023, Twilio experienced a mere 9% growth in revenue. This slowdown in growth was a result of the app market reaching maturity and external economic challenges causing many customers to cut back on their expenditures. Additionally, Twilio faced difficulties in improving its gross margins due to increased fees imposed by wireless carriers on third-party apps using their networks. Moreover, the company continues to operate at a significant loss based on standard accounting principles. GAAP ) basis.
Activist investors targeted Twilio as its growth slowed down, leading to the resignation of its founder and CEO Jeff Lawson in early 2024. Analysts predict a modest 7% revenue growth rate from 2023 to 2026. Despite its stock being perceived as inexpensive at twice the current year’s sales, the company may find it challenging to increase its market value in the current unpredictable market conditions.
What is the status of Unity?
The freemium game engine by Unity includes a range of tools that assist video game developers in creating graphics, sound effects, multiplayer functionality, and various assets. Additionally, it offers features for generating revenue through in-app purchases and built-in advertisements.
Unity is widely used by both independent developers and big game studios because of its comprehensive features. By the time it went public, over 50% of mobile, console, and PC games worldwide were made using Unity’s software.
Unity experienced a 43% increase in revenue in 2020 and a 44% increase in 2021. However, in 2022, its revenue growth slowed to 25% due to certain challenges. two significant challenges . First, Apple ‘s ( AAPL 0.20% ) The privacy updates on iOS made the third-party advertising algorithms no longer effective. gaming market The growth rate decelerated after experiencing a temporary surge during the pandemic.
In late 2022, Unity partnered with the ad-tech company ironSource to revamp its advertising operations. This collaboration led to a 57% increase in reported revenue in 2023. However, analysts anticipate a 20% drop in 2024 as the company integrates the gains from the merger and sells off less profitable, non-core ventures. In addition, Unity’s CEO, John Riccitiello, resigned suddenly in October following a failed initiative to introduce new “runtime fees.” each time The installation of a game after a developer exceeded specific revenue limits caused a strong negative reaction and sparked demands for a boycott from its developers.
Unity’s revenue is anticipated to decrease annually at a compound annual growth rate. negative Between the years 2023 and 2026, the company aims to adjust the size of its business by reducing it by 1%. It is anticipated that the company will continue to operate at a loss based on GAAP standards for the near future. Despite this pessimistic forecast, the company’s stock is currently priced at around four times its sales for this year, which is historically considered to be inexpensive.
The more advantageous purchase: Twilio
I wouldn’t recommend buying Twilio or Unity at the moment. Both companies are dealing with significant challenges in the market and competition, and it is unlikely that they will garner much attention until they can boost their growth or become profitable.
If I had to choose between Twilio and Unity, I would go for Twilio because it is experiencing continued growth, has a lower price, and is dealing with fewer significant challenges. Unity’s partnership with ironSource did not resolve its issues, and I would not consider investing in it until its sales growth becomes more stable.
