What Happened:
Shares of cloud communications infrastructure company Twilio (NYSE:TWLO) fell 5.18% in the morning session after analyst Siti Panigrahi of Mizuho downgraded the stock's rating from Buy to Neutral (Hold) and lowered the price target from $90 to $55, which is a meaningful reduction. The analyst added that Twilio's weaker-than-expected guidance highlighted a "difficult macro backdrop." As a reminder, TWLO's guidance provided when the company reported implies a major deceleration in the business. While operating profit targets were increased, the market was spooked by the underwhelming topline outlook. While this earnings season has been mixed overall and for SaaS specifically, TWLO's guidance stood out as particularly jarring to the downside.
What is the market telling us:
Twilio's shares are very volatile and over the last year have had 55 moves greater than 5%. In context of that, today's move is indicating the market considers this news meaningful but not something that would fundamentally change its perception of the business. The previous big move was 3 days ago, when the stock dropped 17.1% on the news that 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 it was a worrisome quarter given revenue trends, which brings about questions about product-market fit, competitive dynamics, and pricing power.
Twilio is down 10.4% since the beginning of the year, and at $45.19 per share it is trading 59.2% 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 $860.24.
Is now the time to buy Twilio? Access our full analysis of the earnings results here, it's free.