Specializing in communications API (application programming interface) platforms, Twilio (NYSE:TWLO) allows enterprises such as ride-sharing facilitator Uber (NYSE:UBER) to custom-build automated messaging channels. However, TWLO stock was only communicating pain on Friday despite the underlying company delivering a top-and-bottom beat for the second quarter. Analysts took a dim view of Twilio’s third-quarter outlook, regarding it as a broader warning about brewing economic pressures.
On the surface, the headline print supposedly boded well for TWLO stock. For Q2, the technology firm reported revenue of $943.4 million, representing 41% growth over the year-ago quarter. As well, covering analysts forecasted sales of $918.2 million. For earnings per share, Twilio reported a loss of 11 cents excluding some items. However, this compared favorably to the consensus target of a 20-cent EPS loss.
Nevertheless, TWLO stock tanked 14% heading into the afternoon session. For one thing, analysts viewed Twilio’s Q3 revenue projection discouragingly. Though the company anticipates 31% year-over-year (YOY) growth to $970 million, analysts on average anticipated $975.6 million. If that wasn’t bad enough, Twilio projected an EPS loss (minus certain items) of 43 cents, compared with the consensus target of an 11-cent EPS loss, per data compiled by Bloomberg.
“We have not seen broad-based impacts to our business yet because of the macro economy,” Twilio CEO Jeff Lawson said in a recent interview. “We’re preparing ourselves for a variety of outcomes that could come, but we are cautiously optimistic.”
TWLO Stock and the Worrying Economic Barometer
Although Lawson is putting on a brave face, emphasizing that Twilio stands by its forecast for full-year 2023, with profitability on an operating basis despite economic uncertainty, several analysts and investors remain unconvinced. On a year-to-date basis, TWLO stock is down roughly 68%.
According to Morgan Stanley’s Meta Marshall, Twilio is sending off mixed messages with its Q2 disclosure. Per Bloomberg’s description, while “topline growth surpassed expectations, two indicators of customer demand missed analysts’ projections. The company added a net 7,000 new customers, short of the 7,313 expected, while the dollar-based net expansion rate, which indicates growth among existing customers, was 123%. Analysts estimated a rate of 127.3%.”
Moreover, Stifel analyst J. Parker Lane downgraded TWLO stock from “buy” to “hold,” while also severely slashing the price target by 55%. In a research note, Lane primarily cited a “more moderated pace of expansion” and the “projected decline in organic revenue” as near-term risk indicators amid an uncertain macro environment.
Since Twilio’s communications API technology undergirds the largely automated interface and user experience between popular companies — such as Lyft (NASDAQ:LYFT) and DoorDash (NYSE:DASH) — and their customers, TWLO stock is essentially a barometer for the digital economy. In other words, if Twilio is hurting from declining revenue projections, the broader connectivity ecosystem may be under a deflationary threat.
Why It Matters
TWLO stock also has significant implications for the cryptocurrency sector through the underlying Authy app, which is a two-factor authentication (2FA) service. Given the cyber threats facing the broader blockchain industry, Twilio enjoys downwind organic benefits by providing robust security measures.
While Twilio stated that the loss of demand from the crypto space did not materially impact sales, should interest wane for digital assets, it could present another challenge for the embattled company. Therefore, investors need to be extra cautious about their approach to TWLO stock.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.