What Happened:
Shares of cloud communications infrastructure company Twilio (NYSE:TWLO) fell 15.5% in the morning session after the company reported fourth-quarter results and provided revenue guidance for the next quarter, which missed analysts' expectations. Twilio observed headwinds to revenue growth in Q4'2023 from customers in the crypto industry and expects similar headwinds in Q1'2024. Also, the company expects a sequential revenue decline in Q1'2024 partly driven by "elevated seasonal activity on our platform in Q4, which we do not expect to recur in Q1." In addition, its customer growth decelerated during the quarter. On the other hand, revenue and EPS came in ahead of consensus estimates. Overall, this was a mediocre quarter for Twilio. Following the results, Northland Capital Markets downgraded the stock's rating from Outperform (Buy) to Market Perform (Hold).
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What is the market telling us:
Twilio's shares are very volatile and over the last year have had 20 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 biggest move we wrote about over the last year was 9 months 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 this was a worrisome quarter given revenue trends, which raised questions about product-market fit, competitive dynamics, and pricing power.
Twilio is down 14.1% since the beginning of the year, and at $61.14 per share it is trading 21.5% below its 52-week high of $77.85 from December 2023. Investors who bought $1,000 worth of Twilio's shares 5 years ago would now be looking at an investment worth $572.11.
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