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Time to Buy the Dip in Twilio's (TWLO) Stock After Earnings?

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The tech sector has largely attributed to the broader year-over-year growth in this year’s Q4 earnings season with internet software player Twilio (TWLO - Free Report) ) adding to this correspondence after market hours on Wednesday.

Despite showcasing expansive quarterly growth and continuing a very impressive streak of exceeding bottom line expectations, Twilio’s stock dropped -15% in Thursday’s trading session on softer guidance.  

With that being said, let’s see if the post-earnings dip is a buying opportunity or if investors should be cautious at the moment.

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Strong Q4 Earnings

Twilio’s programmable communication tools have been in higher demand with the customer engagement company topping the Zacks EPS consensus for 20 consecutive quarters. Fourth quarter earnings of $0.86 a share crushed estimates of $0.57 a share by 51%. Magnifying Twilio’s consistency has been its growth as Q4 earnings skyrocketed 290% from $0.22 per share a year ago. Plus, Q4 sales of $1.07 billion topped estimates by 3% and rose 5% YoY. 


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Soft Sales Guidance

Twilio’s total sales increased 9% in fiscal 2023 to $4.15 billion but weaker revenue guidance for the first quarter caused TWLO shares to drop unlike internet software peer BlackLine (BL - Free Report)  who topped its quarterly estimates on Tuesday and saw its stock spike over 2% yesterday.

Twilio’s long-term prospects are still resiliently favorable but Wall Street was underwhelmed with the company's forecasts of roughly $1.02-$1.03 billion in sales for Q1 or 2-3% revenue growth. However, the lower end of Twilio’s revenue guidance does match the Zacks Consensus with Twilio’s total sales projected to rise 5% in FY24 and expand another 10% next year to $4.83 billion.

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EPS Outlook and Revisions

Garnishing more investors’ attention and promising to shareholders was Twilio’s annual EPS of $2.45 per share in FY23 compared to an adjusted loss of -$4.44 a share in 2022. Earnings are currently forecasted to dip -3% this year but rebound and climb 23% in FY25 to $2.93 per share based on Zacks estimates.

More importantly, earnings estimate revisions are slightly up over the last 60 days for both FY24 and FY25.

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Bottom Line

For now, Twilio’s stock currently sports a Zacks Rank #2 (Buy) as the cloud communication providers growth potential is still compelling. However, retaining its buy rating will largely depend on the trend of earnings estimate revisions in the coming weeks.  

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