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A portfolio built around high-quality growth will generate long-term gains

November 5, 2020

Share prices are more volatile than the underlying businesses. As I write share prices have been falling. The Nasdaq 100 is down over 11 pc from the 2 September peak. Shares in exciting businesses, which have risen so much in recent years, are often down even more sharply. Twilio peaked at $341 on 13 October and is currently $271, a decline of over 20pc.

Twilio is a company with massive ambitions. Co-founder and CEO, Jeff Lawson, said during the group’s latest earnings call “Our goal is to build the world’s leading customer engagement platform.”

Given what the company has achieved to date  and the latest results, Q3 revenues up 52pc to $448m, this is not an unrealistic goal albeit that if it happens the business will be worth vastly more than the current $41bn. Against that though Twilio shares have risen fivefold, trough to peak,  since March and 15-fold since February 2018. On top of that they are loss-making and valued at 25 times expected  2020 sales. It is not entirely surprising that they are coming in for some profit-taking and they are just one of many businesses in a similar situation. 

Investors generally are experiencing what I experience. When I look at these businesses they are amazing, amazing in what they are doing, amazing in the energy and excitement pulsating through them, amazing for the size of the opportunities they are addressing. I can see that one day, in the not so distant future, Twilio could be worth a multiple of its current value. It is even possible that it could be a trillion dollar business one day if it does become the world’s leading customer engagement platform. But it cannot go from ground zero to the stars in a straight line. There will be periods of consolidation and profit taking. The shares will rise in steps like the whole market. 

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