Twilio: Downgrading Moat Rating From Narrow to None

We are downgrading our moat rating for Twilio to none, from narrow. We still believe the company benefits from high switching costs among its existing customer base on its Application Programming Interfaces, or APIs, and applications, while its super network business benefits from both switching costs and a network effect. However, the company has not historically generated returns that have exceeded its cost of capital, nor do we expect it to throughout the next five years, which precludes us from assigning the company with a narrow moat rating. We maintain our $68 fair value estimate, as the moat downgrade does not materially affect our long-term profitability assumptions. Shares appear modestly undervalued today.