The cloud communications services provider, Twilio, has faced a challenging year with its stock down 11% due to slowing growth and weak customer spending. However, the company’s recent focus on artificial intelligence (AI) adoption in contact centers may provide a much-needed boost. Twilio’s application programming interfaces (APIs) allow companies to build communication tools and connect with customers through various channels. By offering cloud-based contact centers, Twilio enables businesses to replace traditional setups, resulting in cost savings and increased efficiency.
The market for cloud-based contact centers is projected to generate $86 billion in revenue by 2029, with a compound annual growth rate of 27%. Additionally, AI adoption in call centers is expected to grow at a healthy annual pace of 23%, reaching $7 billion in revenue by 2030. Twilio, with its $4.2 billion in revenue over the past year, stands to benefit from these trends.
Twilio has already made progress in offering AI tools to its customers. The company recently launched Agent Copilot, the first of three AI-focused products to be integrated into its communications solutions this year. Agent Copilot provides customer associate agents with real-time data analysis, automating and enhancing productivity while reducing resolution times. Beta testing has shown promising results, indicating potential time savings for addressing customer needs.
Furthermore, Twilio’s Customer AI platform, introduced in the third quarter of 2023, is witnessing increased adoption. As the company continues to launch more AI-focused products, it is well-positioned to capture a larger share of clients’ spending in the future.
Although Twilio’s revenue growth has been modest, with a 7% year-over-year increase in organic revenue for Q1 2024, analysts expect improvement as the adoption of AI-centric services gains traction. Revenue estimates for 2026 have been revised upward, and earnings are forecasted to grow at an annual rate of nearly 20% over the next five years.
Investors may find Twilio an attractive investment opportunity, considering its current valuation. Trading at just 2.6 times sales, it represents a discount compared to the U.S. technology sector’s average of 8.4. Additionally, with a forward earnings multiple of 21, Twilio offers a favorable discount compared to the Nasdaq-100’s forward earnings multiple of 30.
Analysts covering the stock have a median price target of $69, suggesting a potential 16% increase from current levels. The highest price target stands at $110, indicating a potential 85% jump. If Twilio’s growth improves as a result of its AI initiatives, the company has the potential to overcome its recent underperformance and deliver healthy gains.