Twilio Inc. (TWLO Quick QuoteTWLO - Free Report) reported better-than-expected third-quarter 2026 results, with both earnings and revenues surpassing the Zacks Consensus Estimate. Non-GAAP earnings of $1.65 per share beat the consensus mark by 13%. The bottom line increased 32% from the year-ago quarter’s earnings of $1.25 per share, driven by robust revenue growth and operating leverage.

The cloud-based communications platform provider reported revenues of $1.56 billion, surpassing the consensus estimate by 3.1%. Revenues increased 20% year over year, driven by broad-based product strength and growing AI-related demand. The dollar-based net expansion rate was 114%, up from 109% a year ago.

TWLO's Q3 Revenue Growth Drivers

Twilio's organic revenues increased 16% year over year to $1.50 billion. Organic growth excludes incremental U.S. carrier pass-through fees and acquisition-related revenues. The company benefited from healthy demand across messaging, voice and software add-ons, alongside sustained momentum among AI-native customers.

Messaging revenues grew 24% year over year, supported by higher volumes and increased adoption of WhatsApp and Rich Communication Services. Incremental U.S. carrier fees contributed approximately seven percentage points to messaging revenue growth. Messaging accounted for 59% of total revenues during the quarter.

Voice revenues increased more than 20%, reflecting higher usage volumes and growing adoption of software add-ons. The self-serve channel registered revenue growth exceeding 30%, while independent software vendor revenues advanced more than 20%. Software add-on revenues grew more than 25%, and support and services revenues increased more than 30%.

Twilio's AI Momentum Supports Customer Expansion

Twilio witnessed continued adoption of its AI-enabled communications capabilities, including Conversation Relay, Conversational Intelligence and Branded Calling. Management highlighted growing demand from AI-native businesses deploying voice agents and expanding their usage across multiple communication channels.

The company secured several notable customer agreements during the quarter. Ushur signed a seven-figure expansion involving voice AI capabilities, while Gong renewed a seven-figure agreement. Twilio also secured its first eight-figure Conversations deal with a health insurance provider, underscoring growing enterprise interest in AI-powered customer engagement.

Management noted that voice AI represents approximately 1% of overall voice interactions, highlighting the early stage of adoption. Twilio is also developing identity verification capabilities for AI agents, with an offering currently in private beta and general availability planned for 2027.

TWLO's Profitability Improves Despite Carrier Fees

Non-GAAP gross profit increased 18% year over year to $767.8 million. However, non-GAAP gross margin contracted 90 basis points year over year to 49.2%, primarily due to $53 million of incremental U.S. carrier pass-through fees. Excluding these fees, gross margin would have expanded 80 basis points.

Non-GAAP income from operations surged 39% year over year to $325.7 million. Non-GAAP operating margin expanded 290 basis points to approximately 21%, reflecting strong gross profit growth and cost efficiencies. Operating income benefited from approximately $11 million in platform credits.

Twilio's Cash Generation Remains Strong

Net cash provided by operating activities reached $389.2 million compared with $263.6 million in the prior-year quarter. Free cash flow increased approximately 49% year over year to $369.6 million, with a free cash flow margin of 24%, up from 19%.

Twilio ended the third quarter with $1.06 billion in cash and cash equivalents and $1.83 billion in short-term marketable securities. Long-term debt stood at $993.6 million. The company repurchased $127.2 million of shares during the quarter, leaving approximately $700 million under its existing authorization.

TWLO Raises Its 2026 Outlook

For 2026, Twilio raised its reported revenue growth outlook to 20% from 18-18.5% and its organic revenue growth projection to 15% from 13-13.5%. The company also increased its non-GAAP income from operations and free cash flow guidance to $1.19-$1.20 billion each compared with the previous range of $1.135-$1.155 billion.

For the fourth quarter of 2026, Twilio expects revenues between $1.595 billion and $1.605 billion, indicating reported growth of 17-17.5% and organic growth of 11-12%. Non-GAAP income from operations is projected at $300-$310 million, with non-GAAP earnings of $1.48-$1.53 per share.

Twilio Provides an Upbeat 2027 Preliminary Outlook

Management expects organic revenue growth of at least 10% in 2027, exceeding its earlier long-term framework of 7-8%. Non-GAAP gross profit growth is anticipated to remain broadly aligned with organic revenue growth.

Twilio also projects non-GAAP income from operations and free cash flow of at least $1.35 billion each in 2027.

Twilio’s Zacks Rank & Other Stocks to Consider

Currently, TWLO carries a Zacks Rank #2 (Buy).

Some other top-ranked stocks in the broader Zacks Computer and Technology sector are Analog Devices (ADI Quick QuoteADI - Free Report) , Autodesk (ADSK Quick QuoteADSK - Free Report) and Cisco Systems (CSCO Quick QuoteCSCO - Free Report) , each carrying a Zacks Rank #2 at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Shares of Analog Devices have rallied 85.3% year to date. The Zacks Consensus Estimate for ADI’s fiscal 2026 earnings is pegged at $13.00 per share, up by 4 cents over the past 30 days, indicating an increase of 66.9% year over year.

Shares of Autodesk have plunged 19.6% year to date. The Zacks Consensus Estimate for ADSK’s fiscal 2027 earnings is pegged at $12.62 per share, unchanged over the past 30 days, indicating a rise of 21% year over year.

Cisco Systems shares have surged 50.5% year to date. The Zacks Consensus Estimate for CSCO’s fiscal 2027 earnings is pegged at $5.11 per share, unchanged over the past 30 days, indicating an increase of 18% year over year.