YORK UNIVERSITY STUDENT INVESTMENT FUND

Twilio (NYSE:TWLO) By: Abiram Kanagasabai, Alex Stojic, Emily Watson, Eric Mogilner, and Ritesh Mehta YORK UNIVERSITY STUDENT Company Overview INVESTMENT FUND Investment & Company Overview

Business Model

Twilio (NYSE: TWLO) provides a Twilio is a developer platform for communications and a SaaS tool which allows software teams cloud communications platform § to add capabilities like voice, video, and messaging to their applications. This enables businesses to provide the right communications experience for their customers. Behind Twilio is that enables developers to a Super Network, which is a software layer that connects and optimizes communications operate communications within networks around the world, this allows companies and users to reliably call and message software applications anyone anywhere. § Key parts of their product offering includes: q Video Communications: Real-time video infrastructure and SDKs to embed video Company Management collaboration and context-sharing q Voice Communications: API and SDKs to build calling capabilities within web and mobile Jeff Lawson apps Founder, CEO & Chairman q Messaging: API and SDKs to send and receive SMS, MMS, and IP messages globally Mr. Lawson has served as CEO of Twilio since 2008 and from your app previously served as CTO of q Authentication: Two-factor authentication service to strengthen and replace traditional NineStar and Stubhub.com username and password login for websites George Hu COO Companies Using Twilio’s Services Financial Information Mr. Hu has served as COO of Twilio since 2017 and also served as the COO of .com for 5-Year Revenue CAGR 66.4% three years Top Line Performance EBITDA Margin (23.0%)

57% $1,135M Gross Margin 53.7% 55% EV / LTM Revenue 13.92x 54% $650M

54% EV / CY2020 Revenue 8.72x $399M $277M 54% $167M Debt / Equity 15.0%

Share price $93.05 2015 2016 2017 2018 2019 Revenue Gross Margin

Source: Company Filings, Capital IQ 2 YORK UNIVERSITY STUDENT Product Offerings INVESTMENT FUND An Overview of What Twilio Offers

Solutions Flex (2018) Account Security A fully programable cloud contact centre platform designed to allow This allows developers to add two-factor authentication APIs to add § businesses to build and improve customer and agent experiences § an extra layer of security to their application, products include: § Customers can deploy an omnichannel contact centre platform and 1. Authy (2012) – Provides user authentication codes programmatically customize every aspect of the experience 2. Lookup (2014) – Allows developers to validate number format, device including the interface, communication channels, agent routing and type, and provider prior to sending messages reporting, all depending on the business’s needs 3. Verify (2019) – Enables developers to deliver a one-time verification passcode

All Solution APIs are charged based on a per-seat or per-use basis. Channel APIs Voice (2012) Messaging (2012) Video (2015) Twilio Voice – Initiate, receive and Twilio SMS & MMS – Send, receive and Twilio Video – Rich, multi-party video § manage calls § track messages § experiences in web and mobile apps Call Recording – Securely record, Copilot – Send messages from local phone such as recording and screen sharing § store, transcribe and retrieve calls in § numbers Network Traversal – Allows the cloud § developers to initiate low latency, Chat – In-app messaging Global Conference – Integrated audio reliable and cost-effective video § Channels – Send, receive, and track § conferencing with reduced latency sessions § messages to messaging apps

Programmable Video products are Programmable Voice products are Programmable Messaging products are charged on a per-connected- charged on a per-minute basis. charged on a per-message basis. endpoint, per-active-endpoint and per-gigabit basis.

Source: [] 3 YORK UNIVERSITY STUDENT Product Offerings INVESTMENT FUND An Overview of What Twilio Offers

Services: Intelligence Autopilot Conversations Allows for developers to build conversational bots for IVR, mobile Allows for businesses to manage customer conversations across § chat, WhatsApp, SMS, and the company’s contact center § many channels such as WhatsApp, chat, SMS, and MMS Autopilot has it’s own speech recognition and NLU software to Can communicate with customers on the channel they want to use, § determine the intent of the user § all through one platform This eliminates much of the grunt work for the developer so they can Has seen a 10x increase in response rate on the key conversational § focus on customizing specific tasks based on the users’ needs § platforms § Stores message history for future reference

Autopilot is charged on a per minute, message Conversations is charged on a per active user and utterance basis. per month and storage (GB) per month basis Orchestration and Tools Studio TaskRouter Runtime Build malleable communication Route interactions from any channel to Gives the ability for developers to build § applications § certain workers efficiently § APIs, serverless functions, and drag § Orchestrate conversation workflows Eliminates the complexity of allocating tasks and drop tools across channels § among a large amount of agents Provides error notifications so software § engineers can quickly fix bugs § Build dynamic IVRs that respond to Specify the skills of the workers and the skills customer inputs § required for each queue Additionally, it can trigger custom § notifications based on specific error Keeps track of performance from agents and codes § the queue Assists with scaling apps, event § auditing, and role-based access control

TaskRouter is charged on a per-task basis.

Source: Twilio Website 4 YORK UNIVERSITY STUDENT Product Offerings INVESTMENT FUND An Overview of What Twilio Offers

Channel APIs Email (2018) Super Network (2014) § A $2bn acquisition of SendGrid, leading email API platform § Phone Number Provisioning – Acquire local, national, mobile and § Integrations – Integrate email API with leading development toll-free phone numbers on-demand and connect to customer apps frameworks § Short Codes – Five to seven digit phone number used to send or § Internet Protocol – Domains and links can be customized receive a high-volume of messages per second Deliverability – Eliminate domain spoofing and phishing Elastic SIP Trunking – Connect legacy voice applications to the § § Super Network over IP infrastructure with globally available numbers Mobile Support – Email engagement for mobile apps § Interconnect – Enable enterprise grade security and quality service Security – Two-factor authentication enables secure management § § of email by customers

SendGrid’s Email products are charged on a per-email basis. Super Network products are charged on a per-minute or a per- phone-number basis.

Upcoming Products

Twilio Super SIM Twilio Narrowband SIM Super SIM enables IoT products with no Wi-Fi § Extends the useful life of IoT devices and § access to connect to multiple Tier-1 operators provides a “long-term road map” for developers located in over 180 countries using a single SIM § For devices sending infrequent or smaller Eliminates the need for managing contracts, packets of data, Narrowband improves power § billing, SIM inventory and device configuration consumption for these products Automatically connects to the right network for § It reduces the connectivity and hardware costs § the device and gives the user granular control over price, performance and coverage Makes the deployment to billions of IoT devices § much more doable and practical Review usage reports from the country and § operator all under one interface

Source: Annual Report 5 YORK UNIVERSITY STUDENT Share Performance INVESTMENT FUND Annotated Stock Price Graph

2-Year Price Performance

$160.00 30 Strong growth in FY2019 and increased guidance propelled $140.00 3 stock throughout 2019 2 25 Millions $120.00 1 4 6 20 $100.00 5

Commentary $80.00 15 Had its IPO in June, 2016 § $60.00 § Beat EPS for most quarters in FY2019 10 Strong revenue growth fueled by § increased product offerings $40.00 5 TWLO’s is poised to continue to be a $20.00 § leader in the SaaS industry § Improving margins, increasing product $0.00 0 offerings and increasing customer 03/2018 06/2018 09/2018 12/2018 03/2019 06/2019 09/2019 12/2019 base are key variables moving forward Volume Close Trading Statistics March 31, 2019: § Q1 Earnings Beat – EPS $0.01 vs. $0.05 1 Trading Summary § Q1 total revenue of $233.1 million December 30, 2019: Time Period § Revenue up 81% YoY § Q4 Earnings Beat – EPS $0.01 vs. $0.04 Low High Q4 Total Revenue of $331.2 million May 29, 2019: § Q4 revenue up 62% YoY Announced launch of offering of $750 Million § 2 § 5 FY19 total revenue of $1.13 billion Last 30 Days $104.88 $131.90 of Class A Common Shares § § FY19 revenue up 75% YoY June 29, 2019: § Raised guidance for FY2020 § Over 179,000 active customer accounts Last 60 Days $104.88 $131.90 § Q2 Earnings Matched – EPS $0.03 vs. $0.03 3 § Q2 total revenue of $275.0 million § Revenue up 86% YoY

LTM $91.33 $151.00 September 30, 2019: March 4, 2020 § Q3 Earnings Beat – EPS $0.01 vs. $0.03 6 § Twilio brings on Steve Pugh as CSO and Glenn 4 § Q3 total revenue of $295.1 million Weinstein as CCO § Revenue up 75% YoY Source: Company Filings, Bloomberg 6 YORK UNIVERSITY STUDENT INVESTMENT FUND

Industry Overview Industry Dynamics & Major Players

7 YORK UNIVERSITY STUDENT Industry Overview INVESTMENT FUND Drivers and Trends

Industry Drivers and Trends CPaaS Industry Growth

§ Shifts from on-premises to cloud in key IT markets will drive $12 growth opportunities for Twilio: $10.9B q CPaaS Industry Growth: Over the next five years, IDC projects $10 the communications platform-as-a-service (CPaaS) market to grow at a 39% CAGR from $2.1 billion in 2017 to $10.9 billion in $8 2021 q Contact Centers Application Market Growth: While IDC pegs 39.2% CAGR the contact center applications market at roughly $8.4 billion $6 today (growing to $10.4 billion in 2021), the cloud portion of the market is set to more than double during that timeframe, $4 Market Size ($B) representing 51% of the total (up from 29% today) $2.1B q Growing IT Spend: Companies seek to engage with their $2 customers in a highly customized fashion with IT Spend growing to $3.5 trillion and 40% of IT spend in Global Communications $0 2017 2018 2019 2020E 2021E 2022E Contact Centres Market Application Growth Global IT Spend - $3.5 trillion

$12 22% cloud CAGR $10.4B

$8 Global Communications Spending 40% $4 All Other IT

MarketSize($B) Spending 60%

$0 2016 2017 2018 2019 2020E 2021E On-premises Public Cloud

Source: IDC 8 YORK UNIVERSITY STUDENT Competitive Positioning INVESTMENT FUND Communications-Platform-as-a-Service Classifications

Key Strengths Competitors1

TWLO is the only pure-play CPaaS Vendors Customers Number of Customers § (Communications-Platform-as-a- Service) on the public market Alibaba, Airbnb, Zipcar, Concur, Nexmo >50,000 Differentiated service offering Expedia § allows for premium pricing and superior margin profile Bandwith Skype, , ZipRecruiter <5,000 Difficult to replicate ‘Super § Network’ software layer interconnects with global carrier MessageBird RingCentral, Kipsu 15,000 networks Customers and developers Plivo Netflix, Mozilla, PagerDuty, CallRail >70,000 § recognize Twilio as a best-in-class toolbox for communications with a multi-year industry lead with 4x Badoo, Crossroads Trading, Gather <5,000 more active developers than closest competitor Uber, Zendesk, Nordstrom, Twilio 179,000 Competing Factors OpenTable, Airbnb

TWLO operates in the the CPaaS § space which is driven by: q Growth in IT and Premium Communications Spend q Mobile Application Development q Cloud Proliferation CPaaS Pricing Average q Customer Engagement

Twilio is a leader in the CPaaS space due to the company’s differentiated technology, distribution capabilities, Low Cost and management team

Source: RBC Capital Markets, Morgan Stanley, J.P Morgan 9 YORK UNIVERSITY STUDENT Competitors INVESTMENT FUND Direct Competitors and Legacy Vendors

§ Nexmo (acquired by ) is Twilio’s largest direct competitor in terms of feature similarity Claims that it has the largest number of direct-to-carrier relationships, which explains the Revenue: ~US$35M § ability for Nexmo to charge less per transaction since it is able to cut out more intermediaries

Bandwidth is a small-cap CPaaS company that went public in 2017 and offers a full suite of § voice, messaging, and 9-1-1 APIs § The company has its own all-IP voice network, and due to more control can proactively Revenue: US$233M resolve quality issues before customers can hear them, though it’s significantly smaller in scale than Twilio’s super-network of third-party carriers

MessageBird is a Netherlands-based competitor founded in 2011 which offers voice, SMS, Direct § and chat solutions for much cheaper rates by targeting less-sophisticated customers Revenue: ~US$82M § The company has over 15,000 global customers and a strong presence in Europe Plivo has coverage that spans over 1,600 carriers, open sources its underlying framework § under the Mozilla Public License, and hosts on its own data centers Revenue: ~US$15M § Plivo is a more affordable option which claims to offer free enterprise support § Swedish company which provides cloud communication services and solutions § Sinch operates under 4 segments: Enterprise division (key revenue driver), Operator Revenue: US$491M division, Voice and Video division, and the Vehicle segment

Cisco Systems is a conglomerate with hardware, software and service offerings § Acquired Tropo in 2015 as a defensive move against CPaaS firms and is one of the more Revenue: US$52B § expensive options for customers

Another legacy vendor, Avaya reduced a heavy debt load through Chapter 11 bankruptcy Legacy § from which it emerged in 2017 Vendors Revenue: US$2.9B § Released Zang to directly compete with CPaaS players

Genesys sells customer experience and call center technology § Genesys PureCloud acts as a single hub for all customer interactions be it SMS, email, Revenue: ~US$1.5B § voice call, or even social media messaging

Source: Mergent Intellect, Company Websites 10 YORK UNIVERSITY STUDENT INVESTMENT FUND

Investment Thesis

11 YORK UNIVERSITY STUDENT Investment Thesis I: SendGrid Value Proposition INVESTMENT FUND Effective integration with SendGrid will provide a myriad of opportunities

Revenue Synergies Examples of Product Cross-Selling and Integration

§ Twilio now has multiple opportunities to integrate SendGrid’s Together these two products and customers into their own portfolio SendGrid products would allow for intelligent responses to Customers who need to use other Twilio products such as Email Twilio § customer emails and Lookup, Autopilot and Conversations could also sell SendGrid’s Marketing Autopilot Email Marketing Automation tools along with it inquiries regarding Automation promotional marketing In addition, the from the channel API front, Twilio can integrate emails § their SMS, Video, Voice, Chat with the SendGrid API to provide a competitive edge over competitors such as MailChimp Twilio could sell their own The acquisition of SendGrid, incorporates an additional TAM of § over $11B, currently with 2% market share and growing at 18.9% Email API APIs and the SendGrid Twilio APIs CAGR over the past 4 years, TWLO has a large TAM with email API together as a durable growth package to create an “ecosystem”

Cost Synergies Other Synergies

Twilio’s main office is in San Francisco, California and has Twilio’s overall market power increases, by now covering § offices spread throughout North America, South America, Europe § virtually all communication channels from WhatsApp, SMS, and Asia video, voice, live chat, fax and now email, they now hold a special place in the market and can now charge a premium for SendGrid’s head office is in Denver, Colorado and their other that § regional offices are in the same regions as Twilio’s, this presents a cost-cutting opportunity by simply integrating offices The risk and variability of future earnings has been diversified § through this acquisition as Twilio now has another stream of SendGrid had 415 full-time employees (FY2017) and Twilio had revenue based on another communication channel § 1,440 (FY2018), this presents the opportunity to cut the labor force while still maintaining operating efficiency Both Twilio and SendGrid share similar strengths in their strong § product focus and development, they can integrate both research This reduction in labor force could be targeted in a manner to and development teams to cut down on costs and keep the most § maintain the best talent, thus ensuring skilled workers are talented individuals retained post-acquisition

Source: Twilio Website, SendGrid Website, RBC, Twilio’s Annual Report, SendGrid’s Annual Report 12 YORK UNIVERSITY STUDENT Investment Thesis II: Investing in High-Growth Areas INVESTMENT FUND Expansion Projects Beyond Core Products Have the Ability to Materialize

Twilio Flex Contact Center Application Market Size

Flex is scaling and has the ability to become material to revenue by $12 the back end of 2021 22% cloud CAGR $10.4B § Flex, officially launched in 2018, is a fully programmable contact center platform that allows Twilio customers to quickly set up $8 $8B contact centers to handle customer interactions across different channels, including email, social media, chats, and calls

Gaining market traction with some impressive customer wins, $4 § including Lyft, Southwest Airlines, HubSpot, and an undisclosed Fortune 100 company MarketSize($B) § This quarter, planning to introduce a highly requested feature, $0 the programmable dial pad for outbound calling 2016 2017 2018 2019 2020E 2021E § Increased cross selling opportunities due to SendGrid acquisition On-premises Public Cloud

Significant Plans to Upgrade Contact Center Infrastructure Programmable Wireless Internet of Things (IoT)

While still in the early stages, Twilio’s development in the IoT space sets it up to reap future success No intention to change 12% Twilio’s Programmable Wireless product offers a cellular § communications platform that uses APIs to enable a wide-range Next year 21% of IoT devices

With the deployment of 5G, the framework will be established for Next 1-2 years 34% § IoT to rapidly expand – in 2019, the IoT global market was roughly $200B and is predicted to be $1.6T by 2025

Next 3-4 years 23% Twilio’s widening portfolio of platforms position it to be an § attractive acquisition target as multiple vendors would benefit from a robust communications platform with expansion Next 5 years or more 10% opportunities in contact centers and IoT

Source: Company filings, Bloomberg, Statista 13 YORK UNIVERSITY STUDENT Investment Thesis III: Defensible Economic Moat INVESTMENT FUND Opportunities for Margin Expansion

Twilio Core TAM $23B Strong Economic Moat

We estimate Twilio's addressable market to be ~$34B today Authentication § ($23B core Twilio + $11B SendGrid). With revenues of ~$1.12B 10% anticipated in 2019, Twilio only has ~3% market penetration today

As the only public pure-play CPaaS on the public market, § Twilio’s growth will continue to be fueled by the proliferation of CPaaS cloud and mobile application development that is reflective of its 44% Contact strong customer base, which includes Uber, WhatsApp, Airbnb, Centers PayPal and other industry leaders 46% Twilio established market leader position with over 2M app § developers utilizing its services with next closest competitor at less than 400K users

Key Margins YoY Opportunity for Margin Expansion

Looking at the company’s long-term model, Twilio envisions Margins 2017 2018 2019 Long-Term § achieving 20%+ operating margins, driven primarily through its Gross Margin 57.9% 57.0% 57.7% 60-65% application services and efficient business model R&D (% of Revenue) 21.9% 19.7% 19.7% 15-18% § While Gross Margin is lower than most software companies, this S&M (% of Revenue) 23.8% 22.7% 22.7% 16-19% is offset with having a low S&M percentage of revenue due to the company’s developer-led go-to-market G&A (% of Revenue) 11.7% 11.0% 11.0% 7-9% TWLO’s long-term model shows the power of their platform Operating Margin 0.6% 3.1% 4.1% 20%+ § model, growing rapidly at scale and more efficiently than other high growth models

Twilio’s market leader position and differentiated product offering § allow for premium product pricing resulting in strong and sustainable margins

Source: RBC Capital Markets, CapitalIQ, IDC 14 YORK UNIVERSITY STUDENT INVESTMENT FUND

Valuations Relative & Intrinsic

15 YORK UNIVERSITY STUDENT Comparable Companies INVESTMENT FUND Franchised Restaurants and Growth Retail

Market Enterprise Enterprise Value/ Current 52-Week Cap. Value Revenue EBITDA Margin Revenue Growth Long-Term Company Name Ticker Price High / Low (millions) (millions) LTM CY2020 CY2020 CY2021 CY2020 CY2021 Debt All figures in USD $millions `

Next-Gen Tools / High Growth Cloud ServiceNow, Inc. NOW $312.80 $363 / $214 $61,892 $58,809 17.0x 13.2x 28.7% 29.4% 29.2% 26.0% 695 Workday, Inc. WDAY $150.31 $227 / $143 $39,848 $34,497 9.5x 7.9x 22.3% 22.7% 20.6% 19.0% 1,018 Atlassian Corporation TEAMPlc $135.59 $156 / $100 $35,577 $32,497 23.0x 18.1x 25.1% NA 28.4% 26.0% 0 Splunk Inc. SPLK $132.28 $176 / $107 $22,979 $20,827 8.8x 8.0x 4.2% 13.5% 11.0% 26.7% 1,715 Datadog, Inc. DDOG $38.00 $50 / $28 $13,413 $10,575 29.2x 19.4x NA 2.2% 54.8% 33.6% 0 Alteryx, Inc. AYX $118.35 $160 / $72 $9,132 $7,688 18.4x 13.6x 15.6% 19.5% 43.8% 29.6% 630 Zendesk, Inc. ZEN $72.21 $95 / $62 $8,990 $8,290 10.2x 7.8x 8.9% 11.2% 30.3% 27.4% 483 HubSpot, Inc. HUBS $147.57 $208 / $136 $7,768 $6,035 8.9x 7.2x 11.1% 13.2% 26.0% 22.3% 341 New Relic, Inc. NEWR $48.96 $109 / $49 $3,334 $2,657 4.6x 4.0x 11.8% 13.0% 17.7% 17.8% 422 Box, Inc. BOX $12.93 $21 / $12 $2,523 $2,176 3.1x 2.8x 15.6% 18.4% 11.6% 10.6% 40 PagerDuty, Inc. PD $19.27 $60 / $18 $1,591 $1,142 7.4x 5.4x NA NA 27.1% 25.3% 0 Bandwidth Inc. BAND $62.85 $91 / $43 $1,480 $1,320 5.7x 4.8x 0.9% 3.5% 19.3% 18.8% 0

Mean 12.1x 9.4x 11.2% 11.8% 26.6% 23.6% Median 9.2x 7.9x 11.5% 13.1% 26.5% 25.6%

Twilio Inc. TWLO $92.61 $15,449 $11,726 10.3x 7.9x 4.7% 7.7% 33.6% 26.1% 458

Revenue Growth + EBITDA Margin (%)

59% 58% 54% 54% 43% 39% 38% 37% 29% 27% 20% 18% 15%

AYX NOW DDOG TEAM WDAY ZEN TWLO HUBS NEWR BOX BAND PD SPLK

TWLO’s near- and long-term growth prospects enable it to trade at a slight premium to the peer median.

Source: Bloomberg, CapIQ 16 YORK UNIVERSITY STUDENT Discounted Cash Flow INVESTMENT FUND Sensitivity Analysis

Share Price (Gordon Growth) Share Price (Exit Multiple)

Gordon Growth Exit MultipleExit Multiple

$121.55 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% $128.55 9.5x 10.0x 10.5x 11.0x 11.5x 12.0x 12.5x

9.5% $128.3 $134.0 $140.5 $148.0 $156.8 $167.1 $179.6 9.5% $134.9 $139.1 $143.4 $147.6 $151.9 $156.1 $160.4

10.0% $118.0 $122.7 $128.0 $134.1 $141.1 $149.2 $158.8 10.0% $126.3 $130.2 $134.2 $138.1 $142.0 $146.0 $149.9 WACC WACC 10.5% $109.4 $113.2 $117.6 $122.5 $128.1 $134.6 $142.2 10.5% $118.4 $122.0 $125.7 $129.3 $133.0 $136.6 $140.3

11.0% $102.0 $105.2 $108.8 $112.8 $117.4 $122.6 $128.7 11.0% $111.1 $114.4 $117.8 $121.2 $124.6 $127.9 $131.3

11.5% $95.6 $98.3 $101.3 $104.7 $108.4 $112.7 $117.6 11.5% $104.3 $107.4 $110.5 $113.7 $116.8 $119.9 $123.0

Implied Returns (Gordon Growth) Implied Returns (Exit Multiple)

Gordon Growth Exit MultipleExit Multiple

$0.00 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% $0.21 9.5x 10.0x 10.5x 11.0x 11.5x 12.0x 12.5x

9.5% 37.9% 44.0% 51.0% 59.1% 68.6% 79.7% 93.1% 9.5% 45.0% 49.6% 54.1% 58.7% 63.3% 67.9% 72.4%

10.0% 26.9% 32.0% 37.6% 44.2% 51.7% 60.4% 70.8% 10.0% 35.8% 40.0% 44.3% 48.5% 52.7% 57.0% 61.2%

WACC 10.5% 17.6% 21.8% 26.4% 31.7% 37.8% 44.8% 52.9% WACC 10.5% 27.3% 31.2% 35.1% 39.1% 43.0% 46.9% 50.8%

11.0% 9.6% 13.1% 17.0% 21.3% 26.2% 31.9% 38.4% 11.0% 19.4% 23.1% 26.7% 30.3% 33.9% 37.6% 41.2%

11.5% 2.8% 5.7% 8.9% 12.5% 16.6% 21.2% 26.4% 11.5% 12.1% 15.5% 18.8% 22.2% 25.6% 28.9% 32.3%

17 YORK UNIVERSITY STUDENT INVESTMENT FUND

Conclusion Key Risks, Catalysts, and Overall Recommendation

18 YORK UNIVERSITY STUDENT Risks and Catalysts INVESTMENT FUND

Risks

Customer Concentration

Twilio derives a large amount of revenue from large customers, such as WhatsApp, without long-term contracts; since these Variable § Customer Accounts are able to cancel at any time, they could pose a significant shortfall in revenue § Mitigating factor is that concentration is on the decline; in 2015, top 10 customers accounted for 18% of revenue and in 2019 that fell to ~ 4% Dependence on External Infrastructure

Twilio’s cloud infrastructure and products rely nearly entirely on Web Services (AWS), and are vulnerable to any of AWS’ service § interruptions or data breaches; additionally, AWS may terminate its agreement with Twilio with a 30-day notice § Twilio relies on global telecom carriers and network service providers, and is therefore vulnerable to pricing changes and service delays Patent Infringements § Twilio holds over 50 patents (expire 2029-2036), and it could incur substantial costs in protecting or defending intellectual property rights § Possible litigation for infringing the intellectual property rights of others; TeleSign case in 2015 was dismissed Cyber Security Issues § Computer malware, viruses and hacking attacks may occur, and any failure to maintain satisfactory reliability may harm Twilio’s reputation Catalysts

Rise of Software and the Adoption of the Cloud Cloud platforms are emerging rapidly, enabling small and large organizations alike to § experiment; 90% of businesses are on the cloud in some capacity, $3.5T is being spent on IT globally, and over 40% of that amount is being spent on communications

Differentiation Must Increasingly be Built through Customization 75% Purchasing widely-available software does not offer the customization that organizations require “build, not buy” § to deliver differentiated customer experiences; Gartner predicts 75% of application purchases supporting digital business will be "build, not buy“ by end of 2020

19 Source: Company Prospectus, Gartner YORK UNIVERSITY STUDENT Impact of COVID-19 INVESTMENT FUND

Commentary Global Spread of COVID-19 § Coronavirus disease effect on the global economy q The adverse impact on confidence, financial markets, the travel sector and disruption to supply chains contributes to the downward revisions in all G20 economies in 2020 q Containment efforts have involved quarantines and widespread restrictions on labour mobility and travel, resulting in unplanned delays in factory production and sharp cutbacks in many service sector activities q Risk aversion has increased in financial markets, with the US 10-year interest rate falling to a record low and equity prices declining sharply, commodity prices have dropped, and business and consumer confidence have turned down q Since the SARS outbreak in 2003, the global economy has become substantially more interconnected, and China plays a far greater role in global output, trade, tourism and commodity markets OECD Slashed Forecast for 2020 World Economy

5% § Impact on Twilio Global growth q Some major customers have been directly impacted (Uber, 4% outlook lowered ½ Lyft, Southwest Airlines), which may result in a slowdown in a percentage point their business and less demand for Twilio’s products 3% q Twilio is capitalizing on the situation by outlining how communications can be applied to improve COVID-19 2%

response initiatives GDP Growth q Recommendations include: reduce public health hotline 1% backlogs and wait times, combat misinformation about the virus with proactive alerts, reach more people in affected 0% areas by using preferred communication channels, and World G20 Emerging G20 Developed automate patient appointment reminders and scheduling Nov. 2019 Prediction Mar. 2020 Prediction

Source: OECD 20 YORK UNIVERSITY STUDENT Conclusion INVESTMENT FUND Investment Overview and Price Target

Investment Overview We believe TWLO is a great investment opportunity given its defensible economic moat, continued investment in growth opportunities, and § the market’s underestimation of SendGrid’s value proposition

Some key risks to be cognizant of include TWLO’s customer concentration and its reliance on (AWS), the short § contracts in place make the business vulnerable to price changes and customer churn § Ultimately, the risk of customer churn is offset majorly by TWLO’s ability to offer mission-critical products for enterprise communications Blended valuation using the discounted cash flow analysis and comparable companies analysis result in a target price of $117, implying an § upside of ~26% Price Target

DCF (Exit Multiple Method)

DCF (GGM)

Current Target Price: Price: $93 $117 CY 2020 EV / Revenue

LTM EV / Revenue

$60 $80 $100 $120 $140 $160 $180 21 YORK UNIVERSITY STUDENT INVESTMENT FUND

Appendices

22 YORK UNIVERSITY STUDENT Management INVESTMENT FUND Decision Makers of RSG

Jeff Lawson Khozema Shipchandler George Hu

Founder, CEO, Chairman CFO COO

Jeff is a serial inventor with over 15 Khozema has over 20 years of George served as COO at Salesforce years of entrepreneurial and product experience in finance. Previously he for 4 years. He also served in a variety experience. Jeff was also a Founder & served as GE Digital’s chief of other management roles including CTO of NineStar, Founding CTO of commercial officer, CFO and EVP of VP of Product Marketing, SVP of Stubhub.com and Founder, CEO & corporate development. He also Applications, EVP of Products, and CTO of Versity. He was also one of served as the vice president of CMO. After leaving Salesforce, he the original product managers for corporate audit staff of GE. He founded a workplace feedback startup Amazon Web Services. He is now the currently serves as the CFO at at that was acquired by Twitter. He active CEO and Chairman. Twilio. currently serves as the COO of Twilio. Compensation Compensation Compensation

Other, Salary, Other, Other, Salary, Salary, 0.9% 0.1% 2% 0.1% 1% 8%

Share Based, 99% Share Share Based, 97.9% Based, 91%

23 YORK UNIVERSITY STUDENT Ownership INVESTMENT FUND Who are the Major Shareholders of this Business?

Inside Ownership

Other, 0.60%

Inside Holders % of Outstanding Shares Byron Deeter Jeff Lawson, CEO 6.10% (Director) Byron Deeter (Director) 4.00% 4.00% Other Executive Officers and Directors 0.60% Jeff Lawson Total Insiders 10.70% (CEO) 6.10%

Institutional Ownership

Bessemer Venture Partners, Vangaurd 3.70% Group, 5.70% John Wolthuis, Institutional Holders % of Outstanding Shares 1.50% Bessemer Venture Partners and Related 3.70% Vanguard Group 5.70% John Wolthuis 1.50% Other 78.40% Total Institutions 89.30%

Other, 78.40%

24 YORK UNIVERSITY STUDENT Appendix # INVESTMENT FUND

Revenue

$1,200,000 $1,134,468 100.0%

$1,000,000 80.0% $650,067 $800,000 60.0% $600,000 $399,020 40.0% $400,000 $277,335 $166,919 $200,000 20.0%

$0 0.0% 2015 2016 2017 2018 2019

Revenue Revenue Growth

Gross Profit Margin

100.0% 90.0% 80.0% 70.0% 56.5% 60.0% 55.4% 54.2% 53.7% 53.7% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% 2015 2016 2017 2018 2019

25 YORK UNIVERSITY STUDENT Historical Statistics INVESTMENT FUND Debt to Equity and Market Capital

Debt to Equity

120x 99.6x 100x

80x

60x

40x

20x 15.0x NA NA NA 0x 2015 2016 2017 2018 2019

Market Capitalization ($MM)

15,266 15,575

2,815 3,294

2016 2017 2018 2019

26 YORK UNIVERSITY STUDENT Historical Statistics INVESTMENT FUND Addressable Market and Number of Customers

Total Addressable Market

$27.35 B $25.20 B $21.52 B $18.62 B

2016 2017 2018 2019

Number of Customers

179,000

64,286 48,979 36,606 25,347

2015 2016 2017 2018 2019

27 YORK UNIVERSITY STUDENT Discounted Cash Flow Analysis INVESTMENT FUND Free Cash Flow Build

Discounted Cash Flow Analysis Forecast (FYE Dec. 31, in $MM) 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 Revenue $1,455,611 $1,853,603 $2,389,511 $3,056,389 $3,878,715 $4,883,358 $6,099,195 $7,556,500 $9,286,107 $11,318,308 $13,681,503 $16,400,596 $19,178,949 $21,600,051 $23,854,036 $25,836,793 Revenue Growth Rate 28% 27% 29% 28% 27% 26% 25% 24% 23% 22% 21% 20% 17% 13% 10% 8% Cost of Revenue 669,581 828,560 1,037,048 1,286,740 1,582,516 1,928,927 2,329,893 2,788,349 3,305,854 3,882,180 4,514,896 5,198,989 5,657,790 6,480,015 7,156,211 7,751,038 Gross Profit 786,030 1,025,042 1,352,463 1,769,649 2,296,199 2,954,432 3,769,303 4,768,152 5,980,253 7,436,128 9,166,607 11,201,607 13,521,159 15,120,036 16,697,825 18,085,755 Gross Profit Margin 54% 55% 57% 58% 59% 61% 62% 63% 64% 66% 67% 68% 71% 70% 70% 70%

Total Operating Expenses 1,164,489 1,445,810 1,816,028 2,261,728 2,792,674 3,418,351 4,147,453 4,987,290 5,943,108 7,017,351 8,208,902 9,512,345 10,740,211 11,664,027 12,404,099 12,918,397 EBIT (378,459) (420,768) (463,565) (492,079) (496,475) (463,919) (378,150) (219,139) 37,144 418,777 957,705 1,689,261 2,780,948 3,456,008 4,293,727 5,167,359 Less: Taxes 0 0 0 0 0 (97,423) (79,412) (46,019) 7,800 87,943 201,118 354,745 583,999 725,762 901,683 1,085,145 Net Operating Profit After Tax (378,459) (420,768) (463,565) (492,079) (496,475) (366,496) (298,739) (173,119) 29,344 330,834 756,587 1,334,516 2,196,949 2,730,246 3,392,044 4,082,213

Depreciation & Amortization 174,673 209,457 253,288 302,583 356,842 415,085 475,737 536,512 594,311 645,144 684,075 705,226 690,442 626,401 524,789 387,552 % of Revenue 12.0% 11.3% 10.6% 9.9% 9.2% 8.5% 7.8% 7.1% 6.4% 5.7% 5.0% 4.3% 3.6% 2.9% 2.2% 1.5% Stock Based Compensation 208,152 248,630 299,326 355,764 417,091 481,825 547,708 611,573 669,219 715,317 743,362 745,680 701,949 599,041 450,046 387,552 % of Revenue 14.3% 13.4% 12.5% 11.6% 10.8% 9.9% 9.0% 8.1% 7.2% 6.3% 5.4% 4.5% 3.7% 2.8% 1.9% 1.5% Change in Net Working Capital (14,556) (17,609) (21,506) (25,979) (31,030) (36,625) (42,694) (49,117) (55,717) (62,251) (68,408) (73,803) (76,716) (75,600) (47,708) (25,837) Capital Expenditure (58,211) (72,273) (90,779) (113,058) (139,597) (170,871) (207,315) (249,293) (297,068) (350,761) (410,316) (475,462) (536,829) (582,997) (619,980) (620,083) % of Revenue 4.0% 3.9% 3.8% 3.7% 3.6% 3.5% 3.4% 3.3% 3.2% 3.1% 3.0% 2.9% 2.8% 2.7% 2.6% 2.4% Purchase of Intangible Assets (26,201) (31,859) (39,128) (47,565) (57,211) (68,062) (80,052) (93,039) (106,790) (120,964) (135,105) (148,630) (158,226) (160,650) (143,124) (129,184)

Unlevered Free Cash Flow ($94,601) ($84,422) ($62,364) ($20,334) $49,620 $254,856 $394,645 $583,515 $833,299 $1,157,319 $1,570,196 $2,087,527 $2,817,569 $3,136,441 $3,556,067 $4,082,213 Discount Period 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 WACC 10.3% 10.3% 10.3% 10.3% 10.3% 10.3% 10.3% 10.3% 10.3% 10.3% 10.3% 10.3% 10.3% 10.3% 10.3% 10.3% Discount Factor 0.907 0.822 0.745 0.675 0.612 0.555 0.503 0.456 0.413 0.375 0.340 0.308 0.279 0.253 0.229 0.208 PV of Unlevered Free Cash Flow ($85,757) ($69,375) ($46,458) ($13,732) $30,376 $141,431 $198,533 $266,105 $344,490 $433,714 $533,432 $642,884 $786,593 $793,757 $815,822 $848,978

WACC Analysis Terminal Multiple Method Gordan Growth Method Risk-free Rate 0.6% Cumulative PV of Free Cash Flow 4,771,814 Cumulative PV of Free Cash Flow 4,771,814 Market Risk Premium 7.0% % of Enterprise Value 29% % of Enterprise Value 30% Levered Beta 1.43 Terminal Value Terminal Value Cost of Equity 10.59% Terminal Year EBITDA 5,269,565 Terminal Year UFCF 4,082,213 Cost of Debt 5.0% EBITDA Multiple 12.0x Perpetuity Growth Rate 3% Tax Rate 25% Terminal Value 63,234,785 Terminal Value 58,180,577 Current Debt/Capitalization 4% PV of Terminal Value 11,921,521 PV of Terminal Value 10,968,662 WACC 10.3% % of Enterprise Value 71% % of Enterprise Value 70% Enterprise Value 16,693,335 Enterprise Value 15,740,476 Less: Debt (475,937) Less: Debt (475,937) Plus: Cash 1,852,693 Plus: Cash 1,852,693 Equity Value 18,070,091 Equity Value 17,117,232 Fully Diluted Shares Outstanding 139,710 Fully Diluted Shares Outstanding 139,710 Implied Share Price $129.34 Implied Share Price $122.52 Current Share Price $93 Current Share Price $93 Implied Margin of Safety 39.1% Implied Margin of Safety 31.7%

28 YORK UNIVERSITY STUDENT Total Addressable Market Buildup INVESTMENT FUND TAM and Revenue Build

TAM Revenue Build Out Forecast 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035

Twilio TAM: CPaaS TAM $5.66 B $7.88 B $10.98 B $15.28 B $21.28 B $29.19 B $39.76 B $53.35 B $70.53 B $91.13 B $115.01 B $141.69 B $170.31 B $199.60 B $227.94 B $253.47 B CPaaS Growth Rate 39.2% 39.2% 39.2% 39.2% 39.2% 37.2% 36.2% 34.2% 32.2% 29.2% 26.2% 23.2% 20.2% 17.2% 14.2% 11.2% Contact Center TAM $9.9B $10.4B $11.0B $11.6B $12.2B $12.8B $13.5B $14.2B $14.9B $15.6B $16.2B $16.8B $17.3B $17.8B $18.2B $18.6B

Contact Center TAM Growth Rate 5.4% 5.4% 5.4% 5.4% 5.4% 5.4% 5.4% 5.1% 4.8% 4.4% 4.0% 3.6% 3.2% 2.8% 2.4% 2.0%

Contact Center TAM (Cloud) $4.60 B $5.30 B $6.03 B $6.82 B $7.67 B $8.60 B $9.60 B $10.38 B $11.18 B $11.71 B $12.23 B $12.72 B $13.18 B $13.60 B $13.98 B $14.32 B Cloud/On-Prem Mix 46.6% 51.0% 55.0% 59.0% 63.0% 67.0% 71.0% 73.0% 75.0% 75.3% 75.6% 75.9% 76.2% 76.5% 76.8% 77.1%

Contact Center TAM (On-premises) $5.27 B $5.10 B $4.93 B $4.74 B $4.51 B $4.24 B $3.92 B $3.84 B $3.73 B $3.84 B $3.95 B $4.04 B $4.12 B $4.18 B $4.22 B $4.25 B Cloud/On-Prem Mix 53.4% 49.0% 45.0% 41.0% 37.0% 33.0% 29.0% 27.0% 25.0% 24.7% 24.4% 24.1% 23.8% 23.5% 23.2% 22.9% Authentication TAM $2.29 B $2.43 B $2.58 $2.74 $2.91 $3.09 $3.27 $3.46 $3.64 $3.83 $4.01 $4.19 $4.37 $4.53 $4.68 $4.81 Authentication TAM Growth Rate 6.2% 6.2% 6.2% 6.2% 6.2% 6.1% 5.9% 5.7% 5.4% 5.1% 4.8% 4.5% 4.1% 3.7% 3.3% 2.9% Total Twilio TAM ($B) 17.83 20.71 24.52 29.58 36.36 45.11 56.56 71.03 89.08 110.51 135.20 162.64 191.97 221.91 250.83 276.86

Sendgrid TAM: Commercial Emails Sent/Received Daily 132.7B 136.6B 140.7B 145.0B 149.3B 153.8B 158.4B 161.6B 164.8B 168.1B 170.6B 173.2B 175.8B 178.4B 181.1B 183.8B Commercial Emails Sent/Received Daily Growth Rate 3% 3% 3% 3% 3% 3% 3% 2% 2% 2% 2% 2% 2% 2% 2% 2% Commercial Emails Sent/Received Annually 48,422B 49,875B 51,371B 52,912B 54,500B 56,135B 57,819B 58,975B 60,155B 61,358B 62,278B 63,212B 64,161B 65,123B 66,100B 67,091B

Average Revenue Per 1000 Emails $0.25 $0.25 $0.25 $0.25 $0.25 $0.25 $0.25 $0.25 $0.25 $0.25 $0.25 $0.25 $0.25 $0.25 $0.25 $0.25 Total Sendgrid TAM ($B) 12.11 12.47 12.84 13.23 13.62 14.03 14.45 14.74 15.04 15.34 15.57 15.80 16.04 16.28 16.52 16.77

Market Share Twilio Revenue (in thousands) 1,212,221 1,470,732 1,814,647 2,277,533 2,909,084 3,744,394 4,863,753 6,321,533 8,195,128 10,277,869 12,708,487 15,450,886 18,429,107 21,525,130 24,581,135 27,408,876 Twilio Market Share 6.8% 7.1% 7.4% 7.7% 8.0% 8.3% 8.6% 8.9% 9.2% 9.3% 9.4% 9.5% 9.6% 9.7% 9.8% 9.9%

Sendgrid Revenue (in thousands) 242,838 299,998 360,369 424,093 491,315 562,190 636,874 708,587 782,913 859,929 935,107 1,012,345 1,091,691 1,173,189 1,256,887 1,342,832 Sendgrid Market Share 2.0% 2.4% 2.8% 3.2% 3.6% 4.0% 4.4% 4.8% 5.2% 5.6% 6.0% 6.4% 6.8% 7.2% 7.6% 8.0% Total Revenue (in $thousands) 1,455,059 1,770,730 2,175,017 2,701,626 3,400,399 4,306,584 5,500,627 7,030,119 8,978,041 11,137,798 13,643,593 16,463,231 19,520,798 22,698,319 25,838,022 28,751,708

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