It would be a gross understatement to say that Twilio Inc (NYSE:TWLO) has a lot to prove after Monday’s closing bell. That’s when the cloud communications platform specialist reports second-quarter earnings. TWLO stock got shellacked back in May the last time it announced its corporate results, tanking more than 30% and shedding nearly a billion dollars in market cap.
This time around shouldn’t be nearly so messy.
Where Twilio Stands Today
Despite beating estimates on both the top and bottom lines back in May, Twilio — which specializes in cloud-based software that helps developers make and receive phone calls, text messages and video chats — issued Q2 guidance that was drastically below consensus estimates.
TWLO stock holders were spooked after it was revealed that Uber — its largest customer, accounting for more than 12% of 2016 revenues — would be relying less on Twilio’s platform in some markets.
Twilio, which still has some of the largest customers in tech — including Facebook Inc (NASDAQ:FB), Netflix, Inc. (NASDAQ:NFLX), Twitter Inc (NYSE:TWTR) and Salesforce.com, Inc. (NYSE:CRM), among others — has recovered some of those losses. The shares, which closed Friday at $29.21, have improved by more than 20% in the past three months and are now in positive territory on a year-to-date basis.
As it stands, TWLO stock has risen as much as 29% since I recommended it in May. Investors are nonetheless still feeling the aftershock.
Indeed, the company still faces some challenges, but there’s still the appeal of improved fundamentals, suggesting that the market grossly overreacted from the company’s conservative guidance. And with a top- and bottom-line beat Monday and stronger guidance, Twilio can regain the confidence it lost back in the first quarter.
Expectations for Twilio’s Second Quarter
For the three months that ended June, Wall Street expects the San Francisco, California-based company to post a per-share loss of 11 cents on revenue of $86.24 million. This compares to the year-ago quarter when the company lost 8 cents per share on $64.51 million in revenue.
For the full year, ending in December, the loss is expected to be 29 cents per share, compared to a loss of 16 cents a year ago, while full-year revenue of $359.79 million would be a 29.7% increase year over year.
Twilio — which has beaten earnings and revenue expectations in its previous three reporting periods since going public last summer — must show investors on Monday that it can generate pricing power, which will indicate the extent to which it can turn profitable.
In the first quarter, revenue grew by nearly 50% year-over-year to $87.4 million and was up 7% sequentially. Base revenue, meanwhile, rose 62% YOY and 7% sequentially to $80.6 million. Notably, Q1 adjusted gross profit jumped 56.8% YOY to $51.1 million.
The company is benefiting from a combination of efficiency gains and business mix. Analysts on Monday will want to see the extent to which these trends can continue.
Likewise, TWLO must demonstrate that it can thrive without relying too much on Uber.
To that end, given that its base revenue guidance calls for revenue increase well above 50% this suggests that the management plans to better diversify the revenue stream. What’s more, Twilio still has an active customer base that is approaching 41,000 names and is on track to grow above 40% from last year, adding more than 4,000 new active accounts.
Bottom Line on TWLO Stock
Assuming the company beats its second-quarter revenue guidance of $85.5 million to $87.5 million (mid-point $86.5 million), and possibly raises its forecast, Twilio — one of last year’s most successful IPOs — can regain its status as a Wall Street darling.
And given that the management has begun to focus on profitability and ways to improve margins, TWLO stock — currently trading at about 10 times book value — is attractively priced and reach $40 by this time next year, delivering 35% returns from current levels.
As of this writing, Richard Saintvilus did not hold a position in any of the aforementioned securities.
