Twilio IPO: Unicorn start-up faces its Wall Street test

Jeff Lawson, chief executive of Twilio Image copyright Twilio
Image caption Twilio boss Jeff Lawson said more than one million developers use Twilio in their products

On Thursday Twilio will float on the New York Stock Exchange.

You may not have heard of it, but you're likely to have used it. Twilio is a platform that enables developers to incorporate phone calls and text messages into their apps.

To give one example, when you sign-up to messaging app WhatsApp and need to verify your number - the text you get with the verification code will have been sent using Twilio's system. Also, if you get a call or text from an Uber driver, it's done through Twilio in order to not divulge real numbers.

Twilio is also one of the tech industry's so-called "unicorns" - the much-mocked term given to start-ups that are valued at over $1bn (£700m).

The valuations are sometimes considered absurd. Companies that barely have any assets, let alone profits, can become unicorns on the basis of a big investment.

Thriving on ideas

The most striking recent example is perhaps Uber. Here's a transportation company that owns no cars, employs zero drivers*, and is reportedly looking at a yearly loss of well over a billion dollars.

But it's the idea of Uber that is thriving. Much like one of its journeys on a Friday night, the value of the company is surging. Last month, the Saudi government invested $3.5bn in Uber - a company now considered to be worth a staggering $62.5bn.

It's shaky ground, and one that's only really tested when a company takes the leap onto Wall Street - although even then you could argue it's just moving from one pot of speculative money into the next.

There has been something of a tech IPO drought of late. Some estimates say more companies in the past 12 months have moved in the other direction - public-to-private. Acquisitions have been seen as a more attractive exit route for investors, a less volatile way to cash-in.

It's no wonder companies are nervous about facing Wall Street's standards. Google parent company Alphabet and Apple did a valuation do-si-do earlier this year over which was the most valuable company in the world… and yet investors still hit them hard for not reaching tough targets.

And of what few recent tech IPOs we've had, the reception hasn't exactly been encouraging. SecureWorks, formerly part of Dell, was spun out and floated in April. It was poorly received, debuting at less than the company had hoped.

Growth - but no profit

Will Twilio fare any differently? On Wednesday, the company announced it was pricing its IPO at $15 per share. An optimistic start - that's more than the $12-14 range it had it had first anticipated, and would value the company at an altogether unicorny $1.2bn.

On Thursday we'll learn what Wall Street thinks of Twilio. At a time when investors are getting tired of tech start-ups not making any money, they may be looking hard at some of Twilio's obvious weaknesses. Revenue has been growing quickly, but the site isn't close to turning a profit.

Investors will also be nervous about the fact that 17% of Twilio's revenue right now comes from just one customer: Whatsapp. If the Facebook-owned app decides it no longer needs Twilio's services, that's a big chunk of revenue out the door.

San Francisco's unicorns will be looking extremely closely at Twilio when it begins trading tomorrow. A boost for the start-up industry would bring a serious dose of relief to investors and entrepreneurs who rely on optimism above all else to get ideas moving.

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*They of course have lots of drivers working for them - but they are all contractors, much like having a plumber working for you one day in your kitchen.

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