Is Twilio “Dangerously Overvalued,” or a Bonafide Tech Unicorn?

Cloud computing darling Twilio Inc (NYSE:TWLO) has seen its share price nearly quadruple since its IPO less than two months ago, which is bound to attract a lot of attention on both sides.

Leo Sun at the Motley Fool is calling TWLO “dangerously overvalued” versus its peers:

Twilio’s revenue rose 88% in 2015, and it expects sales to climb another 52%-54% this year. At the time of writing, the stock trades at 22 times trailing sales, which is much higher than the average P/S ratio of 5 for the application software industry. But to grasp how truly frothy that ratio is, we should compare Twilio to other tech companies with comparable or superior sales growth.

Optical fiber equipment vendor Acacia Communications (NASDAQ:ACIA) , which at its recent peak had rallied more than 350% from its May IPO price, trades at the time of writing at 11 times sales. Yet its revenue nearly doubled year-over-year during the first six months of 2016, handily outpacing Twilio’s growth.

Momo (NASDAQ:MOMO), the “Chinese Tinder,” which operates a mobile-based social networking platform in China, posted 199% sales growth last year and is expected to post 80% sales growth this year, but it still has a lower P/S ratio than Twilio, at 18. Chinese consumer finance marketplace Yirendai ‘s (NYSE:YRD) revenue surged 556% last year and could more than double this year, yet it still trades at 8 times sales.

Twilio’s sales growth and its P/S ratio clearly don’t match up. If Twilio’s valuation falls back in line with these companies’ at about 10 times sales, its stock could be cut in half within a very short time.

Sun went so far as to compare Twilio to recent IPO flops GoPro and Shake Shack, both of which saw huge initial pops after their initial offerings, only to see their prices implode after the initial euphoria wore off. Still, Sun likes the company, but wants to get in at a better price:

I personally believe that Twilio is a great company that dominates a growing niche market, but I’m not willing to pay 22 times sales for that growth. Instead, I believe that the stock will run out of buyers, the short-sellers will swoop in, and the stock will fall to much more reasonable levels in the near future.

Others aren’t worried about Twilio’s valuation at all, and only time will tell which side proves correct.

Twilio shares fell $0.66 (-1.12%) to $58.20 in afternoon trading. TWLO has gained 103% since its IPO on June 23.

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