Twilio's (NYSE:TWLO) Q3 Sales Top Estimates But Stock Drops 14.6% On Weak Guidance

Radek Strnad /
2022/11/03 4:26 pm EDT

Cloud communications infrastructure company Twilio (NYSE:TWLO) reported Q3 FY2022 results beating Wall St's expectations, with revenue up 32.8% year on year to $983 million. However, guidance for the next quarter was less impressive, coming in at $1 billion at the midpoint, being 6.71% below analyst estimates. Twilio made a GAAP loss of $482.3 million, down on its loss of $224.1 million, in the same quarter last year.

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Twilio (TWLO) Q3 FY2022 Highlights:

  • Revenue: $983 million vs analyst estimates of $972.8 million (1.04% beat)
  • EPS (non-GAAP): -$0.27 vs analyst estimates of -$0.35
  • Revenue guidance for Q4 2022 is $1 billion at the midpoint, below analyst estimates of $1.07 billion
  • Free cash flow was negative $147.1 million, compared to negative free cash flow of $66.3 million in previous quarter
  • Net Revenue Retention Rate: 122%, in line with previous quarter
  • Customers: 280,000, up from 275,000 in previous quarter
  • Gross Margin (GAAP): 47%, down from 49.2% same quarter last year

“We delivered solid third quarter results, with revenue of $983 million and 33% year-over-year growth, as Twilio's Customer Engagement Platform continues to drive success for our customers,” 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 exceptional over the last two years, growing from quarterly revenue of $447.9 million in Q3 FY2020, to $983 million.

Twilio Total Revenue

And unsurprisingly, this was another great quarter for Twilio with revenue up 32.8% year on year. But the growth did slow down compared to last quarter, as the revenue increased by just $39.6 million in Q3, compared to $67.9 million in Q2 2022. We'd like to see revenue increase by a greater amount each quarter, but a one-off fluctuation is usually not concerning.

Guidance for the next quarter indicates Twilio is expecting revenue to grow 18.6% year on year to $1 billion, slowing down from the 53.7% 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 26.1% over the next twelve months.

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Customer Growth

You can see below that Twilio reported 280,000 customers at the end of the quarter, an increase of 5,000 on last quarter. That is a little slower customer growth than what we are used to seeing lately, suggesting that the customer acquisition momentum is slowing a little bit.

Twilio Customers

Key Takeaways from Twilio's Q3 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 $12.3 billion and more than $4.2 billion in cash, the company has the capacity to continue to prioritise growth over profitability.

It was good to see Twilio deliver strong revenue growth this quarter. And we were also happy to see it topped analysts’ revenue expectations, even if just narrowly. On the other hand, it was unfortunate to see that the revenue guidance for the next quarter missed analysts' expectations and there was a slowdown in customer growth. Overall, this quarter's results were not the best we've seen from Twilio. The company is down 14.6% on the results and currently trades at $55.76 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.

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