Intraday game change
10/17/18

●Twilio (TWLO) shares initially hammered on news of $2 billion acquisition

●Stock up more than 200% on year, despite falling more than 20% in past two weeks

●Stock staged intraday turnaround


 

When a stock drops 12% in a single trading session, most of us would put that in the “bad day” category—especially if it’s a tech stock and the Nasdaq 100 (NDX) was up nearly 2% the same day.

Such was the case for cloud communications purveyor Twilio (TWLO), which sold off yesterday amid news it was shelling out $2 billion for SendGrid (SEND), which offers a cloud-based mass email solution.1

Twilio specializes in “in-app” services that allow people to communicate (voice, video, chat) within the confines of whatever app they’re using (“Click here to chat with one of our representatives!”)—something most of us take for granted these days. But Twilio was an early heavyweight in the field (the stock started trading in June 2016), and is still the dominate player; app providers are, understandably, hesitant to switch communication horses midstream.2 So, TWLO appears to be beefing up its offering by integrating an email specialist—a move some market watchers see as a logical growth step.3

Twilio (TWLO), 1/2/18–10/16/18. Twilio (TWLO) price chart. Tripled in 2018.

Source: OptionsHouse

Traders didn’t initially seem to share that opinion. Two billion dollars ain’t chump change, and TWLO isn’t the first stock to take a hit because it was cracking open the corporate wallet (the deal is all-stock, by the way), but the move also came as Twilio was attempting to rebound from a 22% pullback from its September 25 high close of $87.70—a level it reached after more than tripling from its February low, a run that was turbo charged by three up gaps following earnings announcements (chart above).

The thing about yesterday’s ding, which dropped TWLO shares below last week’s tech selloff low, was that it didn’t remain at 12% for very long. After bottoming around an hour after the opening bell, TWLO started paring its losses, and soon pushed above its opening price and into the previous day’s range. By 1 pm. ET, the stock was down only 3.5% or so.

Twilio (TWLO), 6/26/18–10/16/18. Twilio (TWLO) price chart. Tested last week’s lows.

Source: OptionsHouse

One way to summarize the day’s action:

●Traders initially knocked TWLO 12% lower after news of a large capital outlay.

●The stock retreated to the lows established the previous week during the market-wide (and tech-centered) pullback.

●Buyers then pushed the stock around 10% off its intraday low toward the top of the day’s range.

In short, all that added up to a “successful” test of last week’s swing low. The broader market may dictate whether TWLO and other stocks will be called back into the classroom for yet another test, but as of yesterday the stock received a passing grade.

Note: Twilio’s next earnings release is scheduled for November 6, 2018.

Today’s numbers (all times ET): Housing Starts (8:30 a.m.), EIA Petroleum Status Report (10:30 a.m.), FOMC Minutes (2 p.m.). Earnings: Abbott Labs (ABT), U.S. Bancorp (USB), Alcoa (AA), Wintrust Financial (WTFC).

 

Click here to log on to your account or learn more about E*TRADE's trading platforms, or follow the Company on Twitter, @ETRADE, for useful trading and investing insights.


1 CNBC.com. Twilio just spent $2 billion on a company that helps send mass emails. 10/16/18.

2 The Motley Fool. 3 Internet Stocks That Have a Killer Advantage. 7/30/18.

3 TechCrunch. Twilio acquires email API platform SendGrid for $2 billion in stock. 10/16/18.