5 ms·

Several years ago, they would just IPO. They seems to be in a great shape to do that: http://techcrunch.com/2013/06/07/twilio-raises-a-70m-series-d-as-they-con

Several years ago, they would just IPO. They seems to be in a great shape to do that: http://techcrunch.com/2013/06/07/twilio-raises-a-70m-series-d-as-they-consider-an-ipo/ http://techcrunch.com/2013/06/07/twilio-raises-a-70m-series-... http://blogs.wsj.com/venturecapital/2015/02/20/twilio-positions-itself-for-an-ipo-after-logging-100m-in-2014-revenue/ http://blogs.wsj.com/venturecapital/2015/02/20/twilio-positi... Yet another case of late stage private capital.

x5n1 11y ago
founders probably got liquidity.
ChuckMcM 11y ago
The tech crunch article has some good details, and no, I don't think they would be able to successfully IPO just yet, the reason is in the Tech Crunch article : "In February of this year, Twilio noted that it was adding $1 million in recurring revenue every seven days, having ended 2014 with a revenue run rate of $100 million. But like many quickly growing cloud startups, Twilio loses money. In the first half of 2015, the company booked $71.74 million in sales, with cost of revenue of $32.32 million. Those figures leave a gross profit of $39.42 million for the period. Deducting operating expenses and other costs, Twilio had a net loss of $16.370 million in the first six months of 2015." So the first half of the year was $71M in sales, and they are running at an operating loss. They are adding $1M in recurring revenue a week. And we know that it costs them roughly $450K to in costs to service that revenue (cost of revenue). If we add in $1M in recurring revenue a week, for 6 months that is and additional $26M in revenue, maybe $14.3M in additional income (subtracted off the $450K/million cost of revenue), their 'burn rate' or costs for the first half were 39M + 16M or $55M (that is $39M in gross margin and a $16M net loss), if they keep costs constant (don't add head count, same level of capital investment they had in the first half, etc) then we can guess that their costs for the full year would be about $110M, subtracted from their gross revenue (after paying cost of revenue) of $88M they end up losing about $22M for the year. You have a hard time IPO'ing if your business isn't paying for itself. And if it isn't paying for itself, you can't IPO if you can't clearly explain why it eventually will be paying for itself. So the multi-million dollar question which the CEO is no doubt mulling over, is that given the cost of revenue, and the company's costs to get that revenue, is there a point where they make money? In my napkin analysis I made a very charitable assumption that their additional revenue won't incur any additional costs, but that may be incorrect. They may (or may not) write off their equipment against revenue which is not unusual in accrual based accounting but their corp infrastructure and things like leased space come out of G&A. So either they have a story of how they reduce their costs to make money on existing revenue, or they have a story that new revenue adds more gross margin than costs it consumes, and plot an intercept path to operationally cash flow positive and then net cash flow positive. At THAT point they can IPO and stop thinking like a startup.
- shostack 11y ago
  Is "cost of revenue" typically inclusive of recurring revenue? Or just new revenue (ie. cost of sales)?
  - ChuckMcM 11y ago
    Disclaimer, I'm not an accountant, but I've been audited by one :-). In web services company its cost of providing the services, so for example a $6,000 a month bill for IP transit services to Cogent or Level 1 would be a 'cost of revenue' and depreciation of the servers, or telephone access fees. Anything which has a monthly recurring cost, and is providing the infrastructure to deliver the service. It is an analog to the cost of goods sold. And sorry I didn't answer the basic question. Recurring revenue would be revenue that you get every month, like subscription revenue, memberships etc. Cost of revenue would be expenses you pay every month. Over the month you accrue revenue and you accrue costs associated with providing that revenue, you subtract the costs from the revenue to get the gross margin on that revenue. Example if you pay 100/month to run an EC2 instance and that EC2 instance is providing a service to 300 subscribers paying $1 a month, then your recurring revenue is 300 a month, your cost of revenue is 100 a month, your gross margin is (300 - 100) / 300 or 66%.
    - shostack 11y ago
      Thanks for clarifying on the terminology. I work at a SaaS company so am familiar with the dynamics, but less so on the financial terminology side of things ;) So basically, based on your estimates, they are still running negative despite that recurring revenue, and with their current COGS, there may not be an intercept point yet where they are profitable with current figures even as that recurring revenue continues to grow?
      - ChuckMcM 11y ago
        Correct, the question, which we can't answer with available data, is what is the "marginal margin" or more clearly for each million dollars of increased revenue does the cost of revenue stay the same? Or go down? If it stays the same, and their over heads don't go down, then they need basically another year and a half of growth at their current rate to break even. On the outside looking in we can't know of course, somewhere though, there is a spreadsheet :-)

x5n1 11y ago

founders probably got liquidity.

ChuckMcM 11y ago

The tech crunch article has some good details, and no, I don't think they would be able to successfully IPO just yet, the reason is in the Tech Crunch article : "In February of this year, Twilio noted that it was adding $1 million in recurring revenue every seven days, having ended 2014 with a revenue run rate of $100 million. But like many quickly growing cloud startups, Twilio loses money. In the first half of 2015, the company booked $71.74 million in sales, with cost of revenue of $32.32 million. Those figures leave a gross profit of $39.42 million for the period. Deducting operating expenses and other costs, Twilio had a net loss of $16.370 million in the first six months of 2015." So the first half of the year was $71M in sales, and they are running at an operating loss. They are adding $1M in recurring revenue a week. And we know that it costs them roughly $450K to in costs to service that revenue (cost of revenue). If we add in $1M in recurring revenue a week, for 6 months that is and additional $26M in revenue, maybe $14.3M in additional income (subtracted off the $450K/million cost of revenue), their 'burn rate' or costs for the first half were 39M + 16M or $55M (that is $39M in gross margin and a $16M net loss), if they keep costs constant (don't add head count, same level of capital investment they had in the first half, etc) then we can guess that their costs for the full year would be about $110M, subtracted from their gross revenue (after paying cost of revenue) of $88M they end up losing about $22M for the year. You have a hard time IPO'ing if your business isn't paying for itself. And if it isn't paying for itself, you can't IPO if you can't clearly explain why it eventually will be paying for itself. So the multi-million dollar question which the CEO is no doubt mulling over, is that given the cost of revenue, and the company's costs to get that revenue, is there a point where they make money? In my napkin analysis I made a very charitable assumption that their additional revenue won't incur any additional costs, but that may be incorrect. They may (or may not) write off their equipment against revenue which is not unusual in accrual based accounting but their corp infrastructure and things like leased space come out of G&A. So either they have a story of how they reduce their costs to make money on existing revenue, or they have a story that new revenue adds more gross margin than costs it consumes, and plot an intercept path to operationally cash flow positive and then net cash flow positive. At THAT point they can IPO and stop thinking like a startup.

shostack 11y ago
Is "cost of revenue" typically inclusive of recurring revenue? Or just new revenue (ie. cost of sales)?
- ChuckMcM 11y ago
  Disclaimer, I'm not an accountant, but I've been audited by one :-). In web services company its cost of providing the services, so for example a $6,000 a month bill for IP transit services to Cogent or Level 1 would be a 'cost of revenue' and depreciation of the servers, or telephone access fees. Anything which has a monthly recurring cost, and is providing the infrastructure to deliver the service. It is an analog to the cost of goods sold. And sorry I didn't answer the basic question. Recurring revenue would be revenue that you get every month, like subscription revenue, memberships etc. Cost of revenue would be expenses you pay every month. Over the month you accrue revenue and you accrue costs associated with providing that revenue, you subtract the costs from the revenue to get the gross margin on that revenue. Example if you pay 100/month to run an EC2 instance and that EC2 instance is providing a service to 300 subscribers paying $1 a month, then your recurring revenue is 300 a month, your cost of revenue is 100 a month, your gross margin is (300 - 100) / 300 or 66%.
  - shostack 11y ago
    Thanks for clarifying on the terminology. I work at a SaaS company so am familiar with the dynamics, but less so on the financial terminology side of things ;) So basically, based on your estimates, they are still running negative despite that recurring revenue, and with their current COGS, there may not be an intercept point yet where they are profitable with current figures even as that recurring revenue continues to grow?
    - ChuckMcM 11y ago
      Correct, the question, which we can't answer with available data, is what is the "marginal margin" or more clearly for each million dollars of increased revenue does the cost of revenue stay the same? Or go down? If it stays the same, and their over heads don't go down, then they need basically another year and a half of growth at their current rate to break even. On the outside looking in we can't know of course, somewhere though, there is a spreadsheet :-)