A couple of weeks ago, cloud-based telecom-technology company Twilio Inc (NYSE:TWLO) posted its third-quarter numbers. They were … not good, judging from 7% pullback TWLO stock dished out the day the news come out.
Worse, the TWLO stock price had fallen 13% during the two weeks leading up to the Q3 report, suggesting the market properly guessed they wouldn’t care for the news.
It was certainly a frustrating outcome for at least a handful of faithful Twilio stock fans and followers. Revenue was up 41%, handily topping estimates, while the net loss of eight cents per share of TWLO stock was no worse than expected.
What gives? In the most obvious sense, Twilio is a story stock that’s been priced as if growth in the top and bottom line will be better than expected. When it’s not, the market responds in kind. In a more overarching, philosophical sense though, TWLO stock isn’t so much an investment as it is a gamble on how the masses will feel about headlines at a certain time in the future.
In other words, Twilio — which is not only unprofitable but likely to become more unprofitable before the bottom line improves — is a trade.
The good news is, the TWLO stock chart has drawn a couple of key lines in the sand as well as taken on a rather telling shape. Knowing where and what these marks are will give short-term traders an edge on making the right near-term move.
Twilio Stock Dropping Hints
As a quick reminder to the extent it matters right now (which isn’t much), last quarter, Twilio turned $100.5 million worth of revenue into an operating loss of eight cents per share. That’s the amount pros were expecting the company to lose, though those same analysts were also only expecting sales of $92.5 million. In the same quarter a year earlier Twilio lost four cents per share on revenue of $71.5 million.
The numbers themselves aren’t terribly important. What’s notable about the numbers is how they suggest the bigger Twilio gets, the more money it’s going to lose.
It’s true for most startups, to be fair. That doesn’t make it any more palatable though, and there’s still no assurance that competitors will let margins widen anytime soon, if ever.
As was explained back in April, deeper-pocketed rivals like Amazon.com, Inc. (NASDAQ:AMZN) could crush the likes of Twilio with the flip of the switch, while smaller players like Zendesk Inc (NYSE:ZEN) and RingCentral Inc (NYSE:RNG) are fighting for the same business Twilio is. Though the broad tide of app-centric communications is rising, the more it rises, the more competitive things gets.
The backstory is just fodder for parties following and trading Twilio though, used to justify a predetermined long or short position in the stock rather than prompt one. Fortunately, the chart is rather easy to read at this time.
Click to EnlargeTake a look. Right after the post-earnings drubbing, Twilio stock began to form a converging wedge pattern (framed by orange lines). The further into the tip of the wedge TWLO shares move, the more prone it becomes to an explosive move out of the wedge.
Zooming out to a bigger-picture chart of TWLO stock we can where shares have found a key technical ceiling since late last year. It’s at $34.80. There’s also a minor line around $33.00 (dashed), where the bulls and bears have done battle before.
Looking Ahead for TWLO Stock
Click to EnlargeRealistically speaking, odds are good that the stock’s supporters will find a way/reason to squeeze shares out of the converging wedge pattern currently forming.
That will catapult the stock higher, as the rhetoric focuses on last quarter’s impressive revenue growth.
It’s apt to be a fairly short-lived spurt though. If the ceiling at $33.00 doesn’t interrupt the uptrend, the ceiling at $34.80 will likely do the job.
That being said, be fearful if Twilio stock breaks under the lower edge of the wedge pattern, and be even more fearful if shares move under the low of $25.16 hit a couple of weeks ago. If that happens, it’s apt to kickstart a whole new bearish leg that tests May’s low of under $23.00.
Whatever’s in the cards, if you’re compelled by the Twilio story, just bear in mind it’s not going to be about actual results for a long, long time. This is all about getting a read on which way the winds of the story are blowing today.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can follow him on Twitter.