Evidence continues to grow that Vonage (VG) made the right move in acquiring Twilio's (TWLO) top competitor, Nexmo, as a growing number of analysts believe the $6.30 stock is actually worth much more.
Research firm Sidoti raised its price target for Vonage to $9 from $7 on Wednesday as it believes the stock's valuation undervalues the growth potential of the Communications Platform as a Service ("CPaaS") business. Right now, Nexmo sits in second to Twilio in the space. But the cloud communications business is rapidly growing, driven in part by CPaaS. In an August investor presentation, Vonage highlighted data from Frost & Sullivan that suggest CPaaS, which was valued at about $1 billion in 2015, could be an $8 billion business by 2018.
Nexmo was responsible for $8 million of Vonage's revenue in the latest quarter, which is well below Twilio's total quarterly revenue of $64.5 million (base revenue of $56.4 million). Vonage anticipates Nexmo revenue in the high $80 million range for the full year 2016. But given the recent launch of Nexmo's voice application programming interface paired with Vonage's built-in network, it should begin to really challenge Twilio, and comes at a lower cost for the consumer. Sidoti said the market is not fully appreciating the growth potential of Nexmo under the Vonage corporate umbrella, according to TheFly. The firm rated VG shares at Buy. The stock was gaining during midday trading Wednesday.
Sidoti's move comes after Baird Equity Research initiated coverage last week. Baird analyst William Power similarly sees "significant" opportunity with Nexmo as it opens a new growth vertically. Considering that Nexmo offers both voice and messaging APIs, like its rival, and that the revenue model is exactly the same, Twilio's days as the darling of the market may be stymied as Vonage should start to see some appreciation for its Nexmo business.
