To say Twilio Inc (NYSE:TWLO) has been a contentious stock would be a considerable understatement. From an IPO price of in June of 2016 to a high of $70.96 three months later to the current price near $29.00, TWLO stock has thrown more than a little volatility at investors — some good, some bad.
That didn’t change after Monday’s close, when the company posted its Q2 results. Twilio shares were up an impressive 13% in after-hours trading following the release of the company’s second-quarter numbers.
Perhaps the company is fending off competitors in this fast-growing market after all, leveraging its well-developed tool set into real revenue growth.
Twilio Earnings Recap
For the quarter ending in June, Twilio turned $95.9 million worth of revenue into an operating loss of 5 cents per share. That compares favorably to the loss of 8 cents per share reported in the same quarter a year earlier, when it generated $64.5 million in revenue. That’s also better than analysts’ call for a loss of 11 cents per share; sales also beat estimates of $86.2 million.
On a GAAP basis, the company lost 8 cents per share, or a total of $7.1 million — numbers that also were markedly better than year-ago levels.
Twilio CEO Jeff Lawson said of the company’s Q2 figures:
“I’m extremely proud of what our team was able to deliver at our SIGNAL Conference in Q2. We announced 42 new products around SIGNAL – from speech recognition and our new machine learning-powered Understand product, to the launch of an entirely new layer of software – the Twilio Engagement Cloud. Once again this quarter, we saw a large number of companies across a variety of industries place their trust in our platform.”
A Much-Needed Glimmer of Hope
What Twilio does isn’t easy to explain. In layman’s terms, the company provides a cloud-based platform for organizations that have complex text-massaging and voice-based communication needs. As an example, ride-hailing service Uber uses Twilio as its communications backbone, sending updates as to their driver’s location and estimated arrival time to riders.
The need for such technology is obvious, and significant. We live in an increasingly mobile and increasingly always-connected world, and if Twilio doesn’t do it, somebody else will.
Therein lies the rub for Twilio, and by extension, for TWLO stock holders. While Twilio is smack-dab in the middle of a growth market, a great number of other outfits are getting into the business and competing indirectly (and even directly) with Twilio. Zendesk Inc (NYSE:ZEN) and RingCentral Inc (NYSE:RNG) are a couple of those names tiptoeing into Twilio’s turf, but so is web behemoth Amazon.com, Inc. (NASDAQ:AMZN).
That competition is the crux of what pulled the rug out from underneath Twilio this year.
When the future looked bright a year ago, investors were willing to pay a steep premium for shares, as TWLO stock was expected to grow into its frothy price. With the losses getting bigger in step with revenue growth, though, the market is struggling to justify its price. Despite being chopped in more than half in less than a year, it’s still uncomfortably overvalued. The trailing price-to-sales ratio now stands at 9 with today’s after-hours move factored in, versus the market’s norm of 2.4. Income still is nowhere on the horizon.
That wasn’t a concern for traders on Monday afternoon, though, with a glimmer of hope starting to shine.
Looking Ahead for TWLO Stock
For the quarter currently underway, analysts are — or were — collectively looking for a loss of 8 cents per share, doubling the loss of 4 cents per share posted in the Q3 2016. Those same pros are calling for the third quarter’s top line to come in a range of $71.5 million-$89.7 million this time around.
The company’s guidance suggested the top line would actually come between $91.0 million and $93.0 million, translating into per-share losses of between 7 and 8 cents.
For the full year, analysts believe Twilio will turn $359.8 million in sales into a loss of 29 cents per share, again expanding the loss of 16 cents per share of TWLO stock despite growing sales nearly 30% better than 2016’s $277.3 million. Twilio updated that guidance too, now telling investors to look for sales of between $371.0 million and $375.0 million this year. The company’s profit outlook now implies a non-GAAP loss of between 22 cents and 24 cents per share.
It remains to be seen to what extent analysts will change their outlooks, but in light of the scope of Twilio’s second-quarter beat, odds are good those pros will raise their forecasts to a measurable degree.
The frothy valuation of TWLO stock still is a concern. It’s just not enough of a concern to stand in front of the rolling freight train right now.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
