Twilio (NYSE: TWLO) and Palantize (NYSE: PLTR) were both beloved growth stocks in 2021, but they lost their luster this year as inflation, rising interest rates and the Russian-Ukrainian war caused investors to rush to highs. more conservative investments.
Twilio’s stock hit an all-time high of $443.49 last February, but the stock is now trading at $120. Palantir stock hit an all-time high of $39 last January, but is currently worth just over $10 a share. Should investors consider buying either battered stock right now?
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What are Twilio and Palantir doing?
Twilio’s cloud-based platform processes text messages, voice calls, videos, and other content for mobile apps. Instead of developing these features from scratch – which can be buggy and difficult to scale – developers simply add a few lines of code to outsource these features to Twilio.
For example, Twilio’s services allow Lyftdrivers to communicate with their passengers, and to Airbnbhosts to contact their guests. It also provides text-based authentication services for a wide range of applications. Twilio’s total number of active customer accounts increased by 16% to 256,000 in 2021.
Palantir’s data mining and analytics services help government organizations and large enterprises make data-driven decisions. Its Gotham platform primarily serves US government agencies, while its Foundry platform provides similar services to large enterprise customers. A third platform, Apollo, provides constant software updates for both platforms.
Gotham is frequently used to plan military, intelligence, and law enforcement operations. Foundry primarily serves large financial, industrial, energy, mining and automotive customers. Palantir ended 2021 with 237 customers across both platforms, up 71% from a year ago.
How fast are the two companies growing?
Twilio’s revenue grew 55% in 2020 and 61% to $2.84 billion in 2021. It ended the year with an impressive net dollar expansion rate (which measures its growth of a year-over-year per existing customer) by 131%.
Much of Twilio’s growth can be attributed to its acquisitions, but he expects that its organic revenue grows by at least 30% per year over the “next few years”. Analysts expect its revenue to grow 36% in 2022 and 30% in 2023. Based on those estimates, Twilio is trading at six times this year’s sales.
Palantir’s revenue grew 47% in 2020 and then 41% to $1.54 billion in 2021. This growth was mainly driven by the accelerated growth of Foundry’s business in the United States throughout the year, which offset the slower growth of Gotham’s government-facing business. It ended the year with a strong net dollar retention rate of 131%.
Palantir isn’t as dependent on acquisitions as Twilio, but it also expects its revenue to grow at an average rate of at least 30% through 2025. Analysts expect its revenue to grow 30% in 2022 and 29% in 2023, indicating the stock is currently trading at eleven times this year’s sales.
Why are investors paying a higher premium for Palantir?
This comparison suggests that Twilio is the cheapest stock, but investors are likely paying a higher premium for Palantir because its margins are higher.
Neither company is profitable according to generally accepted accounting principles (GAAP) base yet. But on a non-GAAP basis, Twilio’s gross margin fell from 56% in 2020 to 51% in 2021 as it grappled with new wireless fees, which are now charged by major carriers such as Verizon whenever a third-party service accesses their networks.
Palantir’s non-GAAP gross margin rose one percentage point to 82% in 2021. Unlike Twilio, Palantir faces no margin headwinds in the near term — and its two core platforms seem to have a lot of pricing power.
On a non-GAAP basis, analysts expect Twilio’s net loss to widen in 2022 as it ramps up its investments, followed by a return to profitability in 2023. They expect Palantir’s non-GAAP earnings increase 54% in 2022 and 30% in 2023, so the stock is currently trading at 60 times forward earnings.
Which stock is a best buy right now?
Both stocks look oversold, but I think Twilio is a better buy than Palantir, for four simple reasons: it generates stronger sales growth, it trades at a lower price-to-sales ratio, it has a more diverse customer base, and it isn’t dependent on rigid government and big business contracts.
Palantir’s margins and adjusted earnings are higher, but investors still primarily value high-growth companies by their sales if they aren’t yet profitable by GAAP metrics — and that logic suggests Twilio is the better bet.
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Leo Sun has no position in the stocks mentioned. The Motley Fool owns and recommends Airbnb, Inc., Palantir Technologies Inc., and Twilio. The Motley Fool recommends Verizon Communications. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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