If there was any company out there that needed a strong showing this earnings season, it was telecom-technology player Twilio Inc (NYSE:TWLO). Though TWLO stock soared from its June IPO price of $15 to a high near $71 by September, investors began to wonder if the unprofitable organization generating (at the time) less than $250 million in annual revenue was worth its $5 billion market cap.
The market decided “no,” if the 63% slide Twilio stock suffered between then and early January is any indication. And even then, it’s still tough to justify the stock’s price even by the most optimistic of growth scenarios.
TWLO stock has advanced more than 20% since that early-January low, however, as investors once again became more enamored by the story than plausible results.
They may have been right, too. Twilio just reported fourth-quarter earnings that decidedly topped expectations. Then again, TWLO failed to hold onto any of its initial gain in after-hours trading on Tuesday, suggesting traders still aren’t entirely sure what to make of the stock.
Twilio Q4 Earnings Wrap-Up
Twilio provides a variety of cloud-based telephony services, allowing business to manage how their customers interact with them, via apps, primarily on their smartphones. The delivery of text messages, password-recovery, and voice-based communication — and more — are all possible using the Twilio platform. Car-hailing service Uber is a customer, sending a text to a rider when the driver is getting near the pickup point.
It’s clearly a business venture that’s marketable right now. As of the end of last year, 77% of U.S. citizens own a smartphone. That’s more than twice the proportion of consumers who owned a web-enabled mobile device just five years earlier. The number is growing quickly in foreign markets too.
Twilio has done well capturing a share of that growing market, too, and sustained that success through the end of last year. For the quarter ending in December, the company broke even versus expectations for a loss of 5 cents per share; TWLO lost 7 cents per share in the year-ago period. Sales of $82 million compared favorably to analyst expectations of $74.2 million. The revenue growth rate of 60% was more or less in line with the prior quarter’s pace.
A few words from CEO Jeff Lawson:
“Our fourth quarter and full year results demonstrate the power of our platform business model that starts with developers and extends to some of the largest enterprises in the world.”
Highlights/Lowlights
One area of particular interest is the company’s so-called variable account revenue.
Variable account revenue refers to sales contributed by customers that have not agreed to any sort of commitment that would assure the company of a particular amount of revenue. Facebook Inc (NASDAQ:FB) is one of those variable accounts; both Facebook Messenger and WhatsApp integrate with the Twilio platform.
Variable revenue was $6.8 million, down a bit from the prior quarter’s variable revenue of $7.4 million as some customers make a firmer commitment to the company’s service. Also during its fourth fiscal quarter Twilio grew its customer base to 36,606 accounts, up 44% from the number as of the end of 2015.
Looking ahead, Twilio expects to report revenue of between $82 and $84 million for the quarter currently underway, which should drive a loss of between 6 and 7 cents per share. Analysts were calling for a loss of 4 cents per share of TWLO stock on a top line of $77.8 million.
For all of 2017, the company foresees a top line of between $364 million and $372 million, which should lead to a loss of between 15 and 19 cents per share of TWLO stock. Analysts had been modeling a loss of 10 cents per share and sales of $352.6 million.
Bottom Line for TWLO Stock
While the immediate response to the Twilio’s Q4 earnings was lethargic, a beat is a beat. Investors also will eventually recognize that Twilio is setting expectations that are beatable. Even though valuation remains a question mark, progress is being made.
That’s often enough for a story stock like this one.
There’s another bullish edge in play here, too. Short interest in TWLO stock currently stands at 9.2 million, or about a third of the float. That’s high by most any standard, and presents a strong potential for a short-covering rally. After all, the only way to close a short position is by buying the stock back.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
