Twilio (NYSE:TWLO) Surprises With Strong Q3 But Stock Drops

Kayode Omotosho /
2021/10/27 4:23 pm EDT
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Cloud communications infrastructure company Twilio (NYSE:TWLO) beat analyst expectations in Q3 FY2021 quarter, with revenue up 65.2% year on year to $740.1 million. Guidance also exceeded expectations with next quarter revenues guided to $765 million, or 1.9% above analyst estimates. Twilio made a GAAP loss of $224.1 million, down on its loss of $116.9 million, in the same quarter last year.

Is now the time to buy Twilio? Access our full analysis of the earnings results here, it's free.

Twilio (TWLO) Q3 FY2021 Highlights:

  • Revenue: $740.1 million vs analyst estimates of $684 million (8.19% beat)
  • EPS (non-GAAP): $0.01 vs analyst estimates of -$0.14 ($0.15 beat)
  • Revenue guidance for Q4 2021 is $765 million at the midpoint, above analyst estimates of $750.6 million
  • Free cash flow was negative $81.6 million, down from positive free cash flow of $3.15 million in previous quarter
  • Net Revenue Retention Rate: 131%, down from 135% previous quarter
  • Customers: 250,000, up from 240,000 in previous quarter
  • Gross Margin (GAAP): 49.2%, down from 51.5% same quarter last year

“We delivered another quarter of strong growth at scale in the third quarter as companies continue to turn to Twilio in this digital-first world,” 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 rise of the consumer internet is what drives the demand for platforms like Twilio. Organizations are conducting more business online and need to be able to bi-directionaly communicate with their customers, and the COVID pandemic has only further accelerated this shift.

Sales Growth

As you can see below, Twilio's revenue growth has been incredible over the last year, growing from quarterly revenue of $447.9 million, to $740.1 million.

Twilio Total Revenue

This was another standout quarter with the revenue up a splendid 65.2% year on year. Quarter on quarter the revenue increased by $71.2 million in Q3, which was roughly in line with the Q2 2021 increase. This steady quarter-on-quarter growth shows the company is able to maintain a strong growth trajectory.

Analysts covering the company are expecting the revenues to grow 29.8% over the next twelve months, although estimates are likely to change post earnings.

There are others doing even better than Twilio. Founded by ex-Google engineers, a small company making software for banks has been growing revenue 90% year on year and is already up more than 400% since the IPO in December. You can find it on our platform for free.

Customer Growth

You can see below that Twilio reported 250,000 customers at the end of the quarter, an increase of 10,000 on last quarter. That is quite a bit better customer growth than last quarter and in line with what we have seen in previous quarters, demonstrating the company has the sales momentum required to drive continued growth. We've no doubt shareholders will take this as an indication that the company's go-to-market strategy is running smoothly.

Twilio Customers

Key Takeaways from Twilio's Q3 Results

With a market capitalization of $62.6 billion, more than $5.39 billion in cash and the fact it is operating close to free cash flow break-even the company is in a strong financial position to invest in growth.

We were impressed by the exceptional revenue growth Twilio delivered this quarter. And we were also glad to see the acceleration in customer growth. On the other hand, there was a deterioration in revenue retention rate. Overall, we think this was still a really good quarter, that should leave shareholders feeling very positive. The company is down 7.68% on the results and currently trades at $319.32 per share.

Twilio may have had a good quarter, so should you invest right now? It is important that you take into account its valuation and business qualities, as well as what happened in the latest quarter. We look at that in our actionable report which you can read here, it's free.

One way to find opportunities in the market is to watch for generational shifts in the economy. Almost every company is slowly finding itself becoming a technology company and facing cybersecurity risks and as a result, the demand for cloud-native cybersecurity is skyrocketing. This company is leading a massive technological shift in the industry and with revenue growth of 70% year on year and best-in-class SaaS metrics it should definitely be on your radar.

The author has no position in any of the stocks mentioned.