If something doesn’t happen soon, Twilio Inc (NYSE:TWLO) will be a dead stock trading. Okay, maybe that’s a bit over the top. However, the technical signs do not look good at all. At this point, only those who got in at the initial public offering are profitable. At a share price of under $25, TWLO stock has dubiously broken its all-time closing low.
I’ve been consistently concerned about Twilio stock when its IPO dream turned into a nightmare.
My basic thesis is that if Wall Street thinks TWLO is such a great opportunity, it would be conspicuously reflected. But when you consider the slide since September of last year, the enthusiasm is non-existent.
Some analysts have viewed the volatility in Twilio stock as a contrarian buying opportunity. Again, I don’t see this argument’s validity other than a spot-reaction to trading patterns. Shares lost more than 58% between Sep. 28 to Dec. 30 of last year. Investors will need a lot more than “contrarianism” to justify this risk.
In my opinion, Wall Street wants something from Twilio stock that’s simply not there. TWLO is levered towards the cloud communications business, which is a hot business. In their estimation, the company should be soaring. FireEye Inc (NASDAQ:FEYE) recently demonstrated that an underperformer in a soaring industry is still a viable investment.
But the markets aren’t showing love to TWLO stock, and their quarterly results shows us why.
Even Twilio Doesn’t Buy Into TWLO stock
On paper, the financials for Q1 beat expectations. Twilio stock turned in an earnings-per-share loss of 4 cents, above analysts’ consensus by a margin of 2 cents. Sales results were also encouraging. TWLO hauled in $87.4 million against an estimate of $83.60. Yet for all that optimism, company shares dropped more than 26% in the markets.
What happened? As with many things related to Twilio stock, it’s a matter of perception not meeting reality. While the past numbers were great, the forward guidance was awful. According to InvestorPlace writer Tom Taulli, for the current quarter, “the company forecasts a loss of 10 cents to 11 cents and revenues ranging from $85.5 million to $87.5 million. The Street estimate, on the other hand, was for an 8 cent loss and revenues of $87.8 million.”
Additionally, the full-year guidance was disappointing. Before the earnings report, analysts expected an EPS loss of 16 cents, and top-line sales of $370 million. Instead, Twilio is bracing for a loss between 27 cents to 30 cents, with sales of $356 million to $362 million.
As Mr. Taulli explains, “Granted, such divergences may seem kind of minor. But then again, TWLO stock sported a frothy price-to-sale ratio of 11X ahead of the earnings. So even a slight change can make a big difference in the valuation for TWLO.”