Twilio has been soliciting advice from bankers at Qatalyst partners to learn ways to defend itself against activist investors.
Two sources ‘with knowledge of the matter’ revealed the new business partnership to CNBC, although they have asked to remain anonymous.
Evidently, Twilio feels the balance of power has swung too far in favor of its investors, as Qatalyst has reportedly been working with it for months now.
Qatalyst was previously advising Segment and created an activist practice at around the same that Twilio acquired the customer data platform provider in 2020 for $3.2BN.
Although Qatalyst usually works to help companies sell themselves, it is solely focused on offering activist defense advice with Twilio.
The Context
Earlier this month, activist investor Anson Funds put pressure on Twilio to sell up, and, if Twilio cannot find a buyer, the investor would like Twilio to sell its data and applications business. That business houses Segment, Engage, and – until recently – Flex.
Indeed, earlier this month, Twilio moved the CCaaS platform across to its communications business.
Legion Partners also petitioned for the customer engagement platform to take a similar course earlier this year.
Twilio’s stock has gained 45 percent this year, but that is not enough to recoup the 80 percent losses it suffered in 2022, and it is 84 percent off its record value in early 2021.
Furthermore, its annual revenue growth dropped to just five percent, down 30 percent from the same time last year.
Still, Twilio’s data and applications business contributes much less than its communications arm, despite Twilio’s big Segment push in recent years.
As such, Twilio is still a long way from profitability, even with its three rounds of layoffs over the past 18 months.
During this time, the vendor has also permanently shuttered Zipwhip – just 18 months after acquiring it for $850 million – and sold off its IoT arm to Kore.
What the Analysts Think
In a discussion hosted by CX Today’s Charlie Mitchell, industry experts gave their take on the impact of activist investors at Twilio, coupled with its struggling finances.
Michael Fauscette, Founder, CEO, and Chief Analyst at Arion Research, questions the business expertise of Twilio’s activist investors: “A lot of the time when you get activist investors involved, they don’t really understand the business.
Would it make sense to break off pieces of Twilio right now? The Segment and Flex pieces are the fastest growing, and I see data that says SMS is getting softer over the next year or so.
“But certainly the costs cutting [is understandable], you see that every time you get that kind of pressure.”
Jon Arnold, Principal at J Arnold and Associates, took a positive but pragmatic approach to Twilio’s situation: “The underlying technology they have is really good, and these are growing pains for going this way, and that is just the way it is.
They can’t make cheap acquisition now and they just have to sink or swim with what they have.
Part of finding a way forward for Twilio involves having a clear understanding of what it is and who it serves. Arnold believes the answer to this may be clearer from the inside than it is to outside observers: “[Although] Flex inched them into the market, Twilio is not a contact center player. They can bring a very distinct value proposition to the whole CX space, but this is part of the confusion I think the market would have.
“They are not competing with the likes of Five9; that’s not their business. But they come up against these guys all the time, so it’s hard to know what their market is going to be.
“In their minds it is pretty clear but it’s hard to get that across to people.”
Building on that point, Fauscette suggested that even Twilio itself may be suffering from an identity crisis that is making it difficult to find its next best step:
Transitioning from an API company to an application company has been hard for them to justify… probably creates a bit of confusion internally and then [when it comes to] trying to figure out what is that overall strategy? I don’t know, that is a tough one.
Yet, Twilio is not the only company on the receiving end of activist investor demands, as they have become a more widespread occurrence in 2023, even impacting the likes of Salesforce.
