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Twilio (TWLO) Down 2.2% Since Earnings Report: Can It Rebound?

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It has been about a month since the last earnings report for Twilio Inc. (TWLO - Free Report) . Shares have lost about 2.2% in that time frame, underperforming the market.

Will the recent negative trend continue leading up to the stock's next earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Twilio In-Line Q2 Loss, Solid View Mitigate Uber Woes

Twilio reported strong results for second-quarter 2017, wherein the top line came ahead of our expectations, while the bottom line matches the same. Also, the company witnessed year-over-year improvement on both the counts.

Quarter in Detail

The company’s second-quarter revenues surged 48.6% year over year to $95.9 million and surpassed the Zacks Consensus Estimate of $86 million. Also, it came ahead of management’s previously guided range of $85.5–$87.5 million. Furthermore, the company’s base revenue jumped 55% year over year, while excluding Uber, it escalated even at a faster rate of 65%.

The robust top-line performance was mainly driven by remarkable year-over-year growth in active customer account which was a result of the company’s consistent focus on introducing products and its go-to-market sales strategy.

During the reported quarter, the company registered a whopping 41% rise in active customer accounts, adding over 12,651 accounts in the last 12 months, bringing the total count to 43,431 as of Jun 30, 2017. During the second quarter alone, Twilio added over 2,700 active customer accounts.

Moreover, the company announced that “We had a total of 42 product announcements around SIGNAL this year, including Twilio Functions, our serverless computing product, new analytics products, our voice recognition product we built in conjunction with Google and support for several new third-party communications channels like Alexa, Slack, Twitter and email for companies want to communicate with their customers in a growing list of new mediums.”

Non-GAAP gross profit jumped 50.7% year over year to $54.9 million, while margin expanded 80 basis points (bps) to 57.2%. Per Twilio, year-over-year increase was stemmed by the combination of efficiency gains and a better product mix.

Non-GAAP operating expenses flared up 41.4% year over year to $59.6 million. The year-over-year surge was mainly due to increased investment in research and development, and sales to capitalize on the market opportunity. However, as a percentage of revenues, the figure contracted 310 bps to 62.2% from 65.3% in second-quarter 2016.

Further, the company’s non-GAAP operating loss came down to $4.7 million from $5.7 million reported in the year-ago-quarter. Non-GAAP net loss came in at $4.8 million or $0.05 per share, down from the year-ago quarter figure of $5.9 million or $0.08. Also, non-GAAP loss per share came much below the management’s guided range of a loss of $0.10–$0.11. The year-over-year improvement in the bottom line was mainly driven by sturdy top-line growth, which was partially offset by elevated operating expenses and higher share count.

The company’s adjusted loss (including one-time expenses and income but excluding stock based compensation) of $0.20 per share, came in line with the Zacks Consensus Estimate.

The company exited the quarter with cash and cash equivalents of $289.2 million, slightly up from $288.5 million at the end of the previous quarter. In addition, during the first half of the year, the company uses $4 million worth of cash for operational activities.

Outlook

Buoyed by strong quarterly performance, Twilio raised its full-year outlook and provided encouraging guidance for the third quarter. For 2017, Twilio now expects revenues to come between $371 million and $375 million (mid-point $373 million), up from $356–$362 million (mid-point $359 million) projected earlier.

Similarly, base revenue is estimated to be in the range of $348.5–$350.5 million, higher than the previous forecast of $340–$343 million. Non-GAAP net loss is now projected to come in the range of $0.22–$0.24, much lower than its previous projection of $0.27–$0.30 per share.

For the third quarter, Twilio estimates revenues to come between $91 million and $93 million (mid-point $92 million). Base revenue is anticipated to be in the range of $86.5–$87.5 million. Non-GAAP net loss is projected to come in the $0.07–$0.08 per share range.

However, the company expects that loss of business from Uber will continue to affect its base revenue growth and expansion rate till mid 2018.

Recovers from Uber Hangover

The recently reported strong quarterly results clearly indicate that the company has been able to mitigate the loss of revenues from Uber.

It should be noted that Uber uses Twilio services for a variety of used cases such as driver and rider communication, driver marketing and several others. Till 2016, Uber used Twilio’s platforms in most of its geographical operations. However, since first-quarter 2017, Uber is “optimizing by used case and by geography” and is planning to "move communications for some use cases in-app." This means that Uber is now trying to operate its messaging services internally.

Looking at the recent development in its biggest customer’s strategy on communication services, Jeff Lawson is concerned and opines that this will restrain Twilio’s overall growth in 2017. Uber’s contribution to Twilio’s revenues has now declined to approximately 9% in the second quarter from roughly 12% in the previous quarter and 13% in the year-ago quarter.

Despite this, the company managed to report robust revenue growth, as well as narrowed its quarterly loss per share on a year-over-year basis, returning itself once again on growth trajectory mainly due to its sustained focus on launching new products, global expansion, go-to-market sales and acquisition strategies.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates flatlined during the past month. There has been one revision higher for the current quarter compared to one lower. In the past month, the consensus estimate has shifted down by 13.2% due to these changes.

Twilio Inc. Price and Consensus

 

Twilio Inc. Price and Consensus | Twilio Inc. Quote

VGM Scores

At this time, the stock has an average Growth Score of C, though it is lagging a lot on the momentum front with an F. Following the exact same course, the stock was allocated also a grade of F on the value side, putting it in the bottom 20% quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

The company's stock is suitable solely for growth based on our styles scores.

Outlook

The stock has a Zacks Rank #3 (Hold). We are expecting an inline return from the stock in the next few months.


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