The growth estimates for Twilio Inc TWLO hold significant downside risk over the next two to four quarters given that its revenue is directly tied to traffic volumes, according to Piper Sandler.

The Twilio Analyst

Brent Bracelin downgraded Twilio from Overweight to Neutral and cut the price target from $151 to $90. 

The Twilio Thesis

Although Twilio has direct-to-consumer tailwinds that could potentially grow its revenue to over $2 billion in the next five years, its usage-based revenue model elevates near-term disruption risk, Bracelin said in the Tuesday downgrade note. (See his track record here.) 

Twilio’s revenue recognition model is tied directly to traffic volumes for messaging, voice, email and authentication, the analyst said. The user-based revenue model, combined with exposure to some of the largest digital natives, like Uber Technologies Inc UBER, LYFT Inc LYFT, Lime, eBay Inc EBAY and Shopify Inc SHOP, means that the company’s growth trajectory could be severely hit by the COVID-19 pandemic, he said. 

Piper Sandler lowered its growth estimates for 2020 from 31% to 10%.

Twilio does have a strong balance sheet, with net cash of $1.3 billion and a cash burn rate that is unlikely to exceed $90 million annually, “giving it a multi-year run-way to further invest in a market-leading cloud franchise,” Bracelin said. 

TWLO Price Action

Twilio shares were down 3.1% at $93.97 at the time of publication Tuesday.