It’s almost cliche for many investors to dismiss growth stocks like Twilio Inc (NYSE:TWLO) by arguing that “the earnings don’t even matter.” In the case of Twilio stock, however, that’s not far from the truth.
And that’s OK, at least for now. Twilio’s growth runway is long enough that if sales continue to increase, margins — and TWLO stock — will figure themselves out at some point.
That’s a good thing heading into Twilio earnings on Tuesday. Coming off a 2016 where revenue increased 66% year-over-year, including 60% in Q4, analyst consensus suggests a ~41% increase in Q1 — a deceleration that seems to give TWLO room for a top-line beat.
The inherent long-term leverage in the company’s communications platform as a service (CPaaS) model means investors will forgive any miss on the bottom line. At least one analyst has already forecast a Q1 revenue beat.
Meanwhile, Twilio has an ace up its sleeve: a partnership with Amazon.com, Inc. (NASDAQ:AMZN).
With more detail on that arrangement, a reasonably set bar for sales and TWLO stock still only bouncing off post-IPO lows, Twilio earnings look like they should be good news.
Twilio Earnings: What to Watch
Twilio shares aren’t cheap, to be sure. TWLO stock trades at about 7.2x the midpoint of 2017 revenue guidance. That’s one of the highest multiples in the entire market, and closer to the valuation given to larger high-flying cloud plays like Splunk Inc (NASDAQ:SPLK) and Veeva Systems Inc (NYSE:VEEV).
But few stocks in the market can match Twilio’s revenue growth, which is guided to 33% for the full year. Expect a modest contribution from the acquisition of Beepsend, but organic growth should be near 30%.
And there’s reason to expect a strong Q1 report. Twilio beat estimates in both Q3 and Q4 (though neither did much for TWLO stock). Facebook Inc (NASDAQ:FB) unit WhatsApp is a key customer, providing 6% of revenue in Twilio’s Q4. That business is growing nicely and should help results in Q1 and beyond.
Below the top line, the two key figures to watch are the number of customer accounts, and what Twilio calls the “net expansion rate.” The former figure will show Twilio’s reach — and the total was already over 36,000 coming out of Q4. The latter figure is similar to a same-store sales number for a retailer, showing year-over-year growth within existing customers.
If Twilio can show strength in both numbers, revenue should beat expectations for the third-straight quarter. With profit and margin questions still in the distance, a top-line beat — this time — should boost TWLO stock.
The Amazon Question
Amazon’s casts shadows across industries from apparel retail to industrial distribution to convenience stores. The Seattle juggernaut’s Amazon Web Services (AWS) could be a potential rival to Twilio if it chose to build out the cloud-based voice capabilities offered by Twilio.
That seems unlikely.
Amazon and Twilio were already partners, before Amazon further integrated Twilio into services like Amazon Connect and Amazon Chime, among others. Those integrations were part of the rationale for a recent upgrade of Twilio stock by JPMorgan Chase & Co. (NYSE:JPM).