Back to top

Image: Shutterstock

Bear of the Day: Twilio (TWLO)

Read MoreHide Full Article

I last wrote about Twilio (TWLO - Free Report) , the $65 billion enterprise software communications platform, in May as their earnings outlook had taken a turn down. Here's what I observed...

While analyst EPS estimates kept dropping in March, they just took another turn south after the company's Q2 report on May 5.

And that quarterly update was digested with a stock price plunge from $335 to $275 by the second week of May.

In just the past two weeks since the company report, the analyst consensus for TWLO EPS growth for 2021 has dropped from a loss of 13-cents per share to -19 cents.

That represents a turn of fortune from profitability in 2020 to a minus 180% annual loss.

As I wrote in Feb, "While average analyst price targets moved up to north of $500, the stock is probably due for a pause as earnings momentum decelerates."

So where are we now? TWLO remains a powerful player in a small-but-growing niche and their projected 43% revenue growth to top $2.5 billion this year verifies this.

Buying under $300 for the long term would seem to make some sense as it still trades under 20X next year's projected topline of $3.25 billion, representing 30% growth.

(end of May 26 article excerpt)

Twilio continues to be a cloud darling for intelligent corporate comms, with a bright future, but a temporary-turned-persistent squall on EPS growth. The latter is what puts TWLO into the cellar of the Zacks Rank, regardless of sales growth, regardless of how much they are making key investments for their future.

After their July 29 Q2 report, the analyst EPS consensus for this year got slashed from -18 cents to -28 cents, representing a 222% annual decline.

Total revenues increased a whopping 67% year over year to $668.9 million and surpassed the consensus mark of $597.7 million. Twilio's newly acquired Segment business contributed $46.6 million to the company’s total revenues. The acquisition of ValueFirst also acted as a tailwind.

Twilio is benefiting from the constant expansion of its international business as well as the continuous acceleration of digital transformation projects across many industries. In the quarter under review, the company experienced new customer growth with a strong net expansion rate.

The top-line growth was primarily driven by enhancement of customer experiences across various product portfolios like SendGrid, Segment and Flex which are its fastest-growing SaaS products at present.

Quarterly Details

Twilio's dollar-based net expansion rate was 135% in the reported quarter, up from the 133% recorded in the previous quarter and 132% in the year-ago quarter.

Twilio's active customer accounts increased to more than 240,000 as of Jun 30, 2021, from 235,000 at the end of first-quarter 2021 and 200,000 at the end of second-quarter 2020. In the second quarter, Twilio Segment customer accounts were also included in the active customer accounts.

Based on this momentum, analysts have kept topline growth in prime view with $2.66 billion projected for this year, representing 51% growth, while 2022 targets $3.44 billion, for a 29% advance.

Large investors who love the company and its long-term growth outlook may still be cautious here with the persistent EPS erosion and a Price/Sales valuation still near 20 times.

But what I said in May turned about to be stellar advice: "Buying under $300 for the long term would seem to make some sense as it still trades under 20X next year's projected topline of $3.25 billion, representing 30% growth."

I would update my guide here to "Buy near $350" if you get the chance. And don't hurry as we need to see the EPS estimates stop going down and start heading back up.

The Zacks Rank will let you know.

For other stocks growing fat double-digit sales, and actual profits, check out my recent vlog Stocks in My Hood: AMD, SQ, NVDA.

Disclosure: I own (AMD - Free Report) , (SQ - Free Report) , and (NVDA - Free Report) for the Zacks TAZR portfolio.

Published in