What Happened:
Shares of cloud communications infrastructure company Twilio (NYSE:TWLO) jumped 5.12% in the after-market session after Legion Partners' stake, potential demands, and the upcoming changes to TWLO's share class structure came to light. Typically, activist investors take stakes in companies and push for changes such as management refreshes, business/asset divestitures, or a recalibrating of investment priorities, among other moves. While the ~600K shares or ~$40 million stake that Legion Partners disclosed in its Q1 2023 13-F filing is not large, it comes less than a month from the impending collapse of the company's dual-class structure, which could make it easier for Legion or additional activists to exert influence.
What is the market telling us:
Twilio's shares are very volatile and over the last year have had 52 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 22 days ago, when the company 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 up 33% since the beginning of the year, but at $67.13 per share it is still trading 38.5% below its 52-week high of $109.21 from June 2022. Investors who bought $1,000 worth of Twilio's shares 5 years ago would now be looking at an investment worth $1,240.
Is now the time to buy Twilio? Access our full analysis of the earnings results here, it's free.