Cloud communications infrastructure company Twilio (NYSE:TWLO) reported Q2 FY2023 results exceeding Wall Street analysts' expectations, with revenue up 10% year on year to $1.04 billion. However, next quarter's revenue guidance of $985 million was less impressive, coming in 3.48% below analysts' estimates. Twilio made a GAAP loss of $166.2 million, improving from its loss of $322.8 million in the same quarter last year.
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Twilio (TWLO) Q2 FY2023 Highlights:
- Revenue: $1.04 billion vs analyst estimates of $987.2 million (5.12% beat)
- EPS (non-GAAP): $0.54 vs analyst estimates of $0.30 (80.5% beat)
- Revenue Guidance for Q3 2023 is $985 million at the midpoint, below analyst estimates of $1.02 billion
- Free Cash Flow of $71.9 million is up from -$114 million in the previous quarter
- Net Revenue Retention Rate: 103%, down from 106% in the previous quarter
- Customers: 304,000, up from 300,000 in the previous quarter
- Gross Margin (GAAP): 48.7%, up from 47.2% in the same quarter last year
"We closed a strong second quarter, delivering record quarterly revenue, non-GAAP income from operations and free cash flow,” said Jeff Lawson, Twilio's Co-Founder and CEO.
Founded in 2008 by Jeff Lawson, a former engineer at Amazon, Twilio (NYSE:TWLO) is a software as a service platform that makes it really easy for software developers to use text messaging, voice calls and other forms of communication in their apps.
The first shift towards voice communication over the internet (VOIP), rather than traditional phone networks, happened when the enterprises started replacing business phones with the cheaper VOIP technology. Today, the rise of the consumer internet has increased the need for two way audio and video functionality in applications, driving demand for software tools and platforms that enable this utility.
Sales Growth
As you can see below, Twilio's revenue growth has been very strong over the last two years, growing from $668.9 million in Q2 FY2021 to $1.04 billion this quarter.
This quarter, Twilio's quarterly revenue was once again up 10% year on year. On top of that, its revenue increased $31.2 million quarter on quarter, a strong improvement from the $18 million decrease in Q1 2023. This is a sign of acceleration of growth and very nice to see indeed.
Next quarter's guidance suggests that Twilio is expecting revenue to grow 0.2% year on year to $985 million, slowing down from the 32.8% year-on-year increase it recorded in the same quarter last year. Ahead of the earnings results announcement, the analysts covering the company were expecting sales to grow 6.21% over the next 12 months.
The pandemic fundamentally changed several consumer habits. There is a founder-led company that is massively benefiting from this shift. The business has grown astonishingly fast, with 40%+ free cash flow margins. Its fundamentals are undoubtedly best-in-class. Still, the total addressable market is so big that the company has room to grow many times in size. You can find it on our platform for free.
Customer Growth
Twilio reported 304,000 customers at the end of the quarter, an increase of 4,000 from the previous quarter. That's a little slower customer growth than what we've observed in past quarters, suggesting that the company's customer acquisition momentum is slowing.
Key Takeaways from Twilio's Q2 Results
With a market capitalization of $11.3 billion, a $3.68 billion cash balance, and near-breakeven free cash flow status, we're confident that Twilio is in a healthy financial position.
We enjoyed seeing Twilio exceed analysts' revenue expectations this quarter. That really stood out as a positive in these results, together with free cash flow that turned positive for the first time since Q2 2021. On the other hand, its revenue guidance for next quarter missed analysts' estimates and there was a slowdown in customer growth. Overall, this was a mixed quarter for Twilio. The stock is up 5.07% after reporting and currently trades at $61.32 per share.
Twilio may have had a tough quarter, but does that actually create an opportunity to invest right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.
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The author has no position in any of the stocks mentioned in this report.