Shares of cloud communications infrastructure company Twilio (NYSE:TWLO) fell 17.1% in the after-market session after the company reported first-quarter results that narrowly beat analysts' revenue estimates. Earnings per share also beat. However the company missed gross margin and free cash flow estimates, cash burn increased, and net retention rate declined. Revenue guidance for the next quarter also came in below the Consensus, while EPS guidance was in line. Specifically, Twilio guided Q2'23 revenue growth to decelerate meaningfully to 4-5% from 15% in Q1 while reiterating its intermediate-term goal of 15-25% growth, which would require a strong re-acceleration. Additionally, management highlighted the focus on achieving sustainable profitability, adding that "we've structured the 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." Overall this was a worrisome quarter given revenue trends, which brings about questions about product-market fit, competitive dynamics, and pricing power.
What is the market telling us:
Twilio's shares are very volatile and over the last year have had 56 moves greater than 5%. But moves this big are very rare even for Twilio and that is indicating to us that this news had a significant impact on the market's perception of the business. The previous big move was 16 days ago, when the company dropped 5% on the news that big tech companies that account for a significant portion of the major indices were set to report earnings, creating uncertainty and anxiety in the market. Meta, Microsoft, Alphabet, and Amazon were some of the key names to watch. The market is wary of uncertainty, and any negative surprises by these tech behemoths could trigger a sell-off and dampen the mood for the rest of the season.
Twilio is down 8.57% since the beginning of the year, and at $46.09 per share it is trading 58.4% below its 52-week high of $110.79 from May 2022. Investors who bought $1,000 worth of Twilio's shares 5 years ago would now be looking at an investment worth $839.56.
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