Twilio Inc. (TWLO) and Oracle Corporation (ORCL) are two prominent players in the growing cloud computing industry. TWLO offers a cloud communications platform that enables developers to build, scale and operate real-time communications within software applications. ORCL provides products and services that address all aspects of corporate information technology (IT) environments. Its Oracle cloud software-as-a-service offering includes various cloud software applications.
The cloud computing industry, which got a significant boost last year thanks to the COVID-19 pandemic-driven surge in work-from-home structures, has been growing consistently with increasing use of advanced technologies, such as artificial intelligence (AI) and machine learning (ML). Because businesses are expected to partly continue with remote working for the foreseeable future, there should be steady demand for cloud solutions going forward. Furthermore, the increasing adoption of cloud solutions as part of an ongoing digital transformation by businesses should keep driving the industry’s growth. According to Fortune Business Insights, the global cloud computing market is expected to grow at a 17.9% CAGR over the next seven years. So, both TWLO and ORCL should witness increasing demand for their solutions.
But while TWLO has returned 59.5% over the past year, ORCL has gained 41.2%. Furthermore, in terms of their past nine months’ performance, TWLO is a clear winner with 46.2% returns versus ORCL’s 27.6%. So, which of these two stocks is a better pick now? Let's find out.
Click here to check out our Cloud Computing Industry Report for 2021
Latest Movements
On May 18, 2021, TWLO announced that it had agreed to acquire Zipwhip, a leading business-texting platform in North America, to help more than 30,000 organizations engage their customers and drive growth through texting. The acquisition is expected to help TWLO deliver more secure, high-quality toll-free traffic at scale.
ORCL announced on May 25 that its first Arm-based compute offering—OCI Ampere A1 Compute—is available on Oracle Cloud Infrastructure (OCI). As a result, customers can run cloud-native and general-purpose workloads on Arm-based instances with significant price-performance benefits. This is expected to provide ORCL with an edge over its peers, with ORCL as the only major cloud provider offering Arm-based compute instances at one cent per core hour, which is the industry's lowest cost per core.
Recent Financial Results
TWLO’s revenue increased 61.7% year-over-year to $589.99 million for the first quarter ended March 31, 2021. However, the company’s loss from operations increased 112.9% year-over-year to $197.34 million. Its net loss increased 117.9% year-over-year to $206.54 million. Also, TWLO’s non-GAAP EPS came in at $0.05 compared to $0.06 in the prior-year period.
ORCL’s total revenue for its fiscal fourth quarter, ended May 31, 2021, was $11.23 billion, up 7.5% year-over-year. Its revenue from cloud services and license support increased 7.9% year-over-year to $7.39 billion. The company’s net income for the quarter was $4.03 billion, representing a 29.4% year-over-year rise. Its non-GAAP EPS increased 28.3% from the same period last year to $1.54.
Past and Expected Financial Performance
TWLO’s revenue has increased at a 59.4% CAGR over the past five years. Analysts expect the company’s annual revenue to increase 44.4% in 2021 and 31.1% in 2022. Its EPS is expected to increase 193.8% in 2022, and at a 20.5% rate per annum over the next five years.
In comparison, ORCL’s revenue has increased at a 1.8% CAGR over the past five years. The company’s revenue is expected to increase 3.9% in 2022 and 4% in 2023. ORCL’s EPS is expected to grow 9.9% in 2023, and at a 10.6% rate per annum over the next five years.
Profitability
ORCL’s $40.48 billion trailing-12-month revenue is 20.34 times TWLO’s $1.99 billion. ORCL is also more profitable, with an 80.59% gross profit margin versus TWLO’s 51.36%.
Also, ORCL’s ROE and ROA of 147.26% and 7.93%, respectively, compare favorably with TWLO’s negative values.
Valuation
In terms of forward EV/S, TWLO is currently trading at 20.94x, 223.6% higher than ORCL’s 6.47x. Moreover, TWLO is more expensive in terms of forward EV/EBITDA (244.12x versus 13.08x).
So, ORCL is the more affordable stock.
POWR Ratings
TWLO has an overall D rating, which equates to Sell in our proprietary POWR Ratings system. However, ORCL has an overall B rating, which represents a Buy. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
TWLO has a D grade for Value, which is justified given its 1,520x trailing-12-month non-GAAP P/E, which is significantly higher than the 27.09x industry average. ORCL has a B grade for Value, in sync with its 16.43x trailing-12-month non-GAAP P/E , which is 39.4% lower than the 27.09x industry average.
TWLO has a D grade for Quality, consistent with its negative 27.24% value for its trailing-12-month EBIT margin compared to the 8.03% industry average. ORCL’s 38.65% trailing-12-month EBIT margin, which is 381.3% higher than the 8.03% industry average, helped it earn a B grade for Quality.
TWLO has a D grade for Stability also. This is in sync with its 1.43, 5-year monthly beta, which represents its high volatility. ORCL, in contrast, has a B grade for Stability, consistent with its 5-year monthly beta of 0.78.
Oof 13 stocks in the Software - SAAS industry, TWLO is ranked #13. ORCL is ranked #11 of 126 stocks in the Software - Application industry.
In addition to the POWR Ratings we’ve just highlighted, we’ve also rated both TWLO and ORCL for Growth, Momentum and Sentiment. Get all the TWLO ratings here. Also, click here to see the additional POWR Ratings for ORCL.
The Winner
While both TWLO and ORCL can be viewed as good long-term investments considering their market dominance and the cloud industry’s growth potential, TWLO looks significantly overvalued now. So, we think it is wise to bet on ORCL due to its lower valuation and impressive financials.
Our research shows that the odds of success increase if one bets on stocks with an Overall POWR Rating of Buy or Strong Buy. Click here to learn about two top-rated stocks in the Software – SAAS industry. Also, click here to see several other top-rated stocks in the Software – Application industry.
Click here to check out our Cloud Computing Industry Report for 2021
ORCL shares were trading at $77.06 per share on Thursday morning, down $0.02 (-0.03%). Year-to-date, ORCL has gained 20.10%, versus a 13.19% rise in the benchmark S&P 500 index during the same period.
About the Author: Manisha Chatterjee
Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst.
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