Stock Story -
What Happened: Shares of cloud communications infrastructure company Twilio (NYSE:TWLO) fell 9% in the afternoon session after the company reported first quarter results and provided revenue guidance for the next quarter below expectations. While revenue came in narrowly ahead during the quarter, sales ex-US fell below consensus estimates, leaving the US market to do the bulk of the heavy lifting.
On the other hand, Twilio reported strong growth in customers this quarter. Its gross margin improved and free cash flow turned positive year on year (fourth quarter in a row). Zooming out, we think this was still a decent, albeit mixed, quarter, showing that the company is staying on track.
The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks. Is now the time to buy Twilio? Find out by reading the original article on StockStory, it's free.
What is the market telling us: Twilio's shares are very volatile and over the last year have had 14 moves greater than 5%. In context of that, today's move is indicating the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The biggest move we wrote about over the last year was 12 months ago, when the stock dropped 17.1% on the news that the company reported first-quarter results that narrowly beat analysts' revenue estimates. Earnings per share also beat. However the company missed gross margin and free cash flow estimates, cash burn increased, and net retention rate declined. Revenue guidance for the next quarter also came in below the Consensus, while EPS guidance was in line. Specifically, Twilio guided Q2'23 revenue growth to decelerate meaningfully to 4-5% from 15% in Q1 while reiterating its intermediate-term goal of 15-25% growth, which would require a strong re-acceleration.
Additionally, management highlighted the focus on achieving sustainable profitability, adding that "we've structured the business with the aim of enabling Twilio to operate profitably in any financial climate and our first quarter non-GAAP income from operations is a strong signal of our ability to do so." Overall this was a worrisome quarter given revenue trends, which brings about questions about product-market fit, competitive dynamics, and pricing power.
Twilio is down 16.1% since the beginning of the year, and at $59.66 per share it is trading 23.4% below its 52-week high of $77.85 from December 2023. Investors who bought $1,000 worth of Twilio's shares 5 years ago would now be looking at an investment worth $453.21.