Twilio's (NYSE:TWLO) Q3 Sales Top Estimates, Stock Soars

Max Juang /
2023/11/08 4:17 pm EST

Cloud communications infrastructure company Twilio (NYSE:TWLO) reported results ahead of analysts' expectations in Q3 FY2023, with revenue up 5.2% year on year to $1.03 billion. The company also expects next quarter's revenue to be around $1.04 billion, slightly above analysts' estimates. Turning to EPS, Twilio made a non-GAAP profit of $0.58 per share, improving from its loss of $0.27 per share in the same quarter last year.

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Twilio (TWLO) Q3 FY2023 Highlights:

  • Revenue: $1.03 billion vs analyst estimates of $989.5 million (4.5% beat)
  • EPS (non-GAAP): $0.58 vs analyst estimates of $0.36 (61.3% beat)
  • Revenue Guidance for Q4 2023 is $1.04 billion at the midpoint, above analyst estimates of $1.02 billion
  • Free Cash Flow of $195.2 million, up 138% from the previous quarter
  • Net Revenue Retention Rate: 101%, in line with the previous quarter
  • Customers: 306,000, up from 304,000 in the previous quarter
  • Gross Margin (GAAP): 50%, up from 47% in the same quarter last year

“Twilio had a strong third quarter, delivering another record quarter of 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.

Communications Platform

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 strong over the last two years, growing from $740.2 million in Q3 FY2021 to $1.03 billion this quarter.

Twilio Total Revenue

Twilio's quarterly revenue was only up 5.2% year on year, which might disappoint some shareholders. On top of that, the company's revenue actually decreased by $4.09 million in Q3 compared to the $31.2 million increase in Q2 2023. While we'd like to see revenue increase each quarter, management is guiding for growth to rebound in the next quarter and a one-off fluctuation is usually not concerning.

Next quarter's guidance suggests that Twilio is expecting revenue to grow 1% year on year to $1.04 billion, slowing down from the 21.6% year-on-year increase it recorded in the same quarter last year. Looking ahead, analysts covering the company were expecting sales to grow 4% over the next 12 months before the earnings results announcement.

Our recent pick has been a big winner, and the stock is up more than 2,000% since the IPO a decade ago. If you didn’t buy then, you have another chance today. The business is much less risky now than it was in the years after going public. The company is a clear market leader in a huge, growing $200 billion market. Its $7 billion of revenue only scratches the surface. Its products are mission critical. Virtually no customers ever left the company. You can find it on our platform for free.

Customer Growth

Twilio reported 306,000 customers at the end of the quarter, an increase of 2,000 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.

Twilio Customers

Key Takeaways from Twilio's Q3 Results

Sporting a market capitalization of $10.04 billion, more than $3.86 billion in cash on hand, and positive free cash flow over the last 12 months, we believe that Twilio is attractively positioned to invest in growth.

It was good to see Twilio beat analysts' revenue expectations this quarter and produce strong free cash flow. We were also glad its gross margin improved. On the other hand its customer growth decelerated. Overall, this was a solid quarter for Twilio. The stock is up 6.9% after reporting and currently trades at $59.63 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.

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 50% year on year and best-in-class SaaS metrics it should definitely be on your radar.

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