Twilio Inc. (TWLO Quick QuoteTWLO - Free Report) shares have come under pressure since the company reported its third-quarter 2026 results on Oct. 29. The stock has plunged 11.7% since then, as investors reacted negatively to management's fourth-quarter guidance, which points to slower organic revenue growth and lower adjusted earnings than the third quarter.

For the fourth quarter, Twilio expects reported and organic revenue growth in the range of 17%-17.5% and 11%-12%, respectively, year over year. Non-GAAP earnings per share (EPS) are expected to be between $1.48 and $1.53, signifying a year-over-year growth of 11%-15%. Fourth-quarter projections for these metrics indicate a slower growth rate than in the third quarter.

While slowdown concerns are understandable, the sell-off appears to overlook Twilio's improving profitability, strong cash flow generation and growing opportunities in artificial intelligence (AI). The company continues to benefit from healthy demand for its communications platform and software add-ons. Given its improving financial performance and promising AI prospects, the recent decline could offer investors an attractive entry point.

TWLO's Q3 Performance Shows Broad-Based Business Strength

Twilio delivered a strong third-quarter performance, with revenues growing 20% year over year to $1.56 billion. Organic revenue growth, excluding incremental U.S. carrier pass-through fees and acquisition-related revenues, was 16%.

Growth was broad-based across its business. Messaging revenues increased 24% year over year, supported by higher volumes and growing adoption of WhatsApp and Rich Communication Services. Voice revenues advanced more than 20%, driven by volume growth and increased adoption of software add-ons. Revenues from software add-ons grew more than 25% year over year, while support and services revenues increased 30%.

Twilio's self-serve channel delivered more than 30% revenue growth, while revenues from independent software vendors rose more than 20%. Customer expansion also remained encouraging. Its dollar-based net expansion rate was 114%, up from 109% in the prior-year quarter. This indicates that existing customers are spending more on Twilio's platform as their communication requirements expand.

Profitability was another major highlight. Non-GAAP gross profit increased 18% year over year to $768 million. Non-GAAP income from operations surged 39% to $326 million, while its operating margin improved 290 basis points to 21%. Non-GAAP EPS jumped 32% to $1.65.

Twilio Inc. Price, Consensus and EPS Surprise

Twilio Inc. price-consensus-eps-surprise-chart | Twilio Inc. Quote

Free cash flow reached a record $370 million, up from $248 million a year earlier. These results demonstrate that Twilio is growing its business while improving operating efficiency and generating substantial cash.

AI Adoption Offers Long-Term Growth Opportunities for Twilio

AI could become one of Twilio's most important long-term growth drivers. Businesses are increasingly adopting AI-powered customer service, voice assistants and automated communication systems. These applications require reliable infrastructure to connect AI agents with customers across different communication channels.

Twilio is well positioned to benefit from this trend through its global communications infrastructure, which supports messaging, voice, email and other customer engagement services across more than 180 countries. Management believes voice and consumer AI adoption remains in its early stages. As businesses increasingly deploy AI agents, demand for reliable communication infrastructure, customer context and secure identity verification should increase.

Twilio is also expanding its AI-focused offerings. Conversation Relay enables businesses to build voice AI experiences, while Conversation Intelligence provides real-time transcription and other capabilities. Its Branded Calling and verification products help businesses establish trust and improve customer engagement. Twilio recently introduced an identity offering in private beta to help businesses verify which entity an AI agent represents. Management expects to make this offering generally available in 2027.

Customer wins provide early evidence of this opportunity. During the third quarter, a health insurance provider signed an eight-figure deal for Twilio's Conversations Layer, while Ushur expanded its relationship through a seven-figure agreement.

These deals suggest that AI-related demand is translating into commercial opportunities rather than remaining just a long-term concept.

Long-Term Outlook Supports TWLO’s Bullish Investment Case

Despite the disappointing fourth-quarter revenue and earnings guidance, Twilio's full-year outlook improved. Management raised its 2026 organic revenue growth forecast to 15% compared with its previous expectation of 13-13.5%.

The company also raised its full-year non-GAAP income from operations and free cash flow guidance to $1.19-$1.20 billion for each metric from the previous guidance range of $1.135-$1.155 billion.

Twilio provided encouraging preliminary guidance for 2027. It expects organic revenue growth of at least 10%, above its earlier Investor Day framework of 7-8% annual growth. Management also expects non-GAAP income from operations and free cash flow to reach at least $1.35 billion each.

This outlook suggests that Twilio expects to sustain double-digit organic growth while continuing to improve profitability.

The company also has financial flexibility to invest in product innovation and return capital to shareholders. It repurchased $448.3 million of shares during the first nine months of 2026 and had approximately $700 million remaining under its existing buyback authorization at the end of the third quarter.

Twilio YTD Stock Performance and Valuation

Twilio shares have gained 50.1% year to date, significantly outperforming the broader Zacks Internet – Software industry's 3.5% decline. Despite the recent correction, the stock has delivered impressive returns, reflecting improving business momentum and investor interest in its AI opportunities.

TWLO has also outperformed industry peers, including Unity Software Inc. (U Quick QuoteU - Free Report) , Salesforce, Inc. (CRM Quick QuoteCRM - Free Report) and MongoDB, Inc. (MDB Quick QuoteMDB - Free Report) . Shares of Unity Software, Salesforce and MongoDB have declined 3.9%, 14.3% and 21.7%, respectively.

Twilio YTD Price Return Performance

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However, valuation remains a consideration. TWLO trades at a forward 12-month price-to-earnings multiple of 32.18, above the industry average of 26.82. This premium suggests that investors are already pricing in meaningful future growth.

Twilio Forward 12-Month P/E Ratio

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Compared with its industry peers, Twilio trades at a higher multiple than Salesforce and Unity Software, while at a lower multiple than MongoDB. At present, Salesforce, Unity Software and MongoDB trade at forward 12-month P/E of 14.03, 24.50 and 43.69, respectively.

Conclusion: Buy Twilio Stock on the Recent Weakness

Twilio's slower fourth-quarter growth outlook deserves attention, but it does not undermine the company's broader investment story. Strong third-quarter results, improving operating margins, record free cash flow, encouraging 2027 guidance and expanding AI opportunities provide compelling reasons to remain optimistic.

Although its premium valuation and near-term growth moderation could keep the stock volatile, the 11.7% post-earnings decline offers investors an opportunity to accumulate shares at a more attractive price.

Currently, Twilio carries a Zacks Rank 2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.