Twilio's (NYSE:TWLO) Posts Q1 Sales In Line With Estimates But Stock Drops 13.2% On Weak Guidance

Adam Hejl /
2023/05/09 4:20 pm EDT

Cloud communications infrastructure company Twilio (NYSE:TWLO) reported results in line with analyst expectations in Q1 FY2023 quarter, with revenue up 15% year on year to $1.01 billion. However, guidance for the next quarter was less impressive, coming in at $985 million at the midpoint, being 6.05% below analyst estimates. Twilio made a GAAP loss of $342.1 million, down on its loss of $221.6 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) Q1 FY2023 Highlights:

  • Revenue: $1.01 billion vs analyst estimates of $1 billion (small beat)
  • EPS (non-GAAP): $0.47 vs analyst estimates of $0.21 ($0.26 beat)
  • Revenue guidance for Q2 2023 is $985 million at the midpoint, below analyst estimates of $1.05 billion
  • Free cash flow was negative $114.5 million, compared to negative free cash flow of $64.2 million in previous quarter
  • Net Revenue Retention Rate: 106%, down from 110% previous quarter
  • Customers: 300,000, up from 290,000 in previous quarter
  • Gross Margin (GAAP): 48.7%, in line with same quarter last year

“We’ve structured our business with the aim of enabling Twilio to operate profitably in any financial climate and our first quarter non-GAAP income from operations is a strong signal of our ability to do so,” 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 impressive over the last two years, growing from quarterly revenue of $590 million in Q1 FY2021, to $1.01 billion.

Twilio Total Revenue

This quarter, Twilio's quarterly revenue was once again up 15% year on year. But the revenue actually decreased by $18 million in Q1, compared to $41.5 million increase in Q4 2022.Shareholders might want to pay closer attention to this as the management is guiding for the decline in sales to continue in the coming quarter

Guidance for the next quarter indicates Twilio is expecting revenue to grow 4.41% year on year to $985 million, slowing down from the 41% year-over-year increase in revenue the company had recorded in the same quarter last year. Ahead of the earnings results the analysts covering the company were estimating sales to grow 12.8% over the next twelve months.

In volatile times like these we look for robust businesses with strong pricing power. Unknown to most investors, this company is one of the highest-quality software companies in the world, and their software products have been the default standard in critical industries for decades. The result is an impressive business that is up an incredible 18,152% since the IPO. You can find it on our platform for free.

Customer Growth

You can see below that Twilio reported 300,000 customers at the end of the quarter, an increase of 10,000 on last quarter. That's about the same customer growth as what we seen last quarter and quite a bit above what we have typically seen over the last year, confirming the company is sustaining a good pace of sales.

Twilio Customers

Key Takeaways from Twilio's Q1 Results

Since it has still been burning cash over the last twelve months it is worth keeping an eye on Twilio’s balance sheet, but we note that with a market capitalization of $10.1 billion and more than $3.95 billion in cash, the company has the capacity to continue to prioritise growth over profitability.

We enjoyed seeing Twilio’s improve their gross margin materially this quarter. That feature of these results really stood out as a positive. On the other hand, it was unfortunate to see that the revenue guidance for the next quarter missed analysts' expectations, revenue retention rate deteriorated and cash burn increased. Overall, this quarter's results were not the best we've seen from Twilio. The company is down 13.2% on the results and currently trades at $48.6 per share.

Twilio may have had a tough quarter, but does that actually create an opportunity to 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.