Twilio (TWLO), a leading CPaaS (communication platform as a service) company is expanding its portfolio by investing in Syniverse (MBAC) and Zenvia (ZENV), the former company is going public through a SPAC merger and the latter just went public through an IPO. With the SPAC price still at $10 and Zenvia trading at IPO price, investors now have a chance to invest at the same price as Twilio did.
Syniverse is a mobile connection company, which consists of enterprise and carrier businesses. Their enterprise business includes Global A2P messaging (application-to-person messaging), and CPaaS, which provides mobile engagement and messaging-platform-as-a-service solutions. Their carrier business includes the messaging solutions segment, which provides P2P messaging (peer-to-peer messaging) and RCS messaging, and also the global network segment, which provides networking solutions.
The company is having multiple tailwinds that are fueling its growth, such as the global rollout of 5G, wider CPaaS platform, Internet of things (IoT), and etc. The 5G infrastructure global annual spend is forecasted to grow at a CAGR (compounded annual growth rate) of 58% from $3.5 billion in 2020 to $53 billion in 2026. The CPaaS market is forecasted to grow at a CAGR of 30% from $7 billion to $25 billion in 2025. Besides, their partnership with Twilio is also providing synergies that will further accelerate enterprise growth.
The company’s enterprise business is forecasted to grow at a CAGR of 27% from 2020–2025 and the carrier business is forecasted to grow at a CAGR of 5% from 2020–2025. Its gross margin and EBITDA margin are at a very healthy 60% and 31% respectively. The current share price of $10 translates to an EV/adjusted EBITDA of 12, which is lower than most of its peers in the sector. The growth rate of the carrier business is quite conservative given multiple tailwinds and I believe there will be an expansion in the future.
Zenvia is a pure CPaaS company, which mainly operates in South America. Twilio mainly operates in the United States therefore it is reasonable for them to expand their global footprint by investing in a foreign company. South American mobile adoption rates have been rising rapidly which leads to explosive growth in the CPaaS market as companies need to use Zeniva’s platform to reach their audiences. CPaaS is priced according to usage, therefore the number of engagements is very important. South America provides a perfect tailwind as the number of engagements is high due to its large population.
The company is forecasted to grow at around 30% from 2021 to 2024 which is higher than most CPaaS companies. Its valuation is also reasonable trading at an EV/sales ratio of 4. Their gross margins are a bit low right now but the company has been improving it and I believe as the company grows it will have more pricing power which will help its margins. Lastly, it is also important to note that the high volatility of foreign currency and unstable political environment may affect the companies revenue and this is something investors should pay close attention to.
Both Syniverse and Zenvia are quality companies, Syniverse is a more conservative option due to its diverse business whereas Zenvia is a more aggressive option as it is operating in an emerging market. I believe both companies will do well in the future, and with Twilio already owning a piece in the company, a buyout may happen anytime if the stock price plummets.
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