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Friday, November 04, 2022 5:08:41 PM
1:05 PM ET, 11/04/2022 - Briefing.com
Twilio (TWLO), a cloud communications platform provider, beat analysts' 3Q22 EPS and revenue estimates, continuing a winning streak that extends beyond five years. However, the stock is still getting crushed today because the company issued weak Q4 guidance, confirming fears that macroeconomic headwinds are causing its customers to pull back on spending. Specifically, its outlook for revenue of $995-$1.005 bln equates to yr/yr growth of just 18% at the midpoint, representing a steep deceleration from this quarter's growth of 33%. In fact, since 2Q21, TWLO's top-line growth rate has been trending lower, steadily dropping from the mid-60% level seen last year.
Until this quarter's earnings conference call, TWLO had maintained a relatively upbeat posture regarding its near-term prospects, while highlighting the resiliency of its business. For instance, during the Q2 earnings call, President Elena Donia commented that the company hadn't seen a significant deterioration in demand and that companies are prioritizing investments in solutions like TWLO's that drive revenue and efficiency. She did acknowledge, though, that a couple of isolated areas of softness were emerging, including crypto, social, and consumer on-demand. Not only did those verticals weaken further in Q3, but new cracks also formed in areas such as e-Commerce and retail.
Compounding the problem is that TWLO decided after the 2020 election cycle to off-board political traffic from its platform to avoid friction with some of its customers. Consequently, Q3 and Q4 will not experience the typical spike in political-based traffic that typically occurs during election cycles.
Unfortunately, the troubles aren't relagated to TWLO's Q4 revenue outlook.
Non-GAAP gross margin continues to contract, sinking to 25% in Q3 from 33% last quarter, and from 41% in 1Q22. The company is moving further and further away from its long-term gross margin target of 60% and investors are clearly losing confidence that it will reach that mark any time soon.TWLO attributes the erosion to a higher mix of lower margin international revenue. In Q3, international revenue accounted for 34% of total revenue, which was actually down from 35% in Q2 and Q1.When asked about this contradiction during the earnings call, COO Khozema Shipchandler explained that the 35% figure is based on where the customer's address is, not necessarily where the traffic ends up. Shipchandler added that TWLO has U.S. and international customers that reside internationally, and that send messages internationally, which have a slightly lower gross margin. As a result of the eroding gross margin and declining revenue growth, TWLO's profits are heading in the wrong direction. This quarter's ($0.27)/share loss was its worst showing in over five years and the company is forecasting another loss for Q4, guiding for EPS of ($0.11)-($0.06).Despite this backslide, TWLO maintained its expectation of achieving non-GAAP operating profitability in FY23. To help reach that goal, the company announced an 11% workforce reduction in September, but more changes to its cost structure may be needed.
TWLO is getting punished because the slowdown in growth is much more pronounced than investors were anticipating. Coming off of the Q2 earnings report, it seemed that demand was holding up relatively well, outside of a few weak spots. Conditions have soured significantly since then, though, and TWLO is now experiencing a broad-based downturn in customer spending levels. Making matters worse, TWLO's margins are on the downtrend, putting its profitability aspirations into question for next year.
"Then there was a woman, a lion of a woman."
Recent TWLO News
- Twilio to Announce Second Quarter 2024 Results on August 1, 2024 • Business Wire • 07/12/2024 12:00:00 PM
- Form 4 - Statement of changes in beneficial ownership of securities • Edgar (US Regulatory) • 07/09/2024 08:48:50 PM
- Form 4 - Statement of changes in beneficial ownership of securities • Edgar (US Regulatory) • 07/09/2024 08:46:17 PM
- Form 4 - Statement of changes in beneficial ownership of securities • Edgar (US Regulatory) • 07/09/2024 08:43:52 PM
- Twilio Named a Leader in 2024 Gartner® Magic Quadrant™ for Communications Platform as a Service • Business Wire • 06/27/2024 04:30:00 PM
- Twilio Recognized as a Leader in 2024 IDC MarketScape for Contact Center as a Service (CCaaS) • Business Wire • 06/20/2024 08:00:00 PM
- Twilio Report Reveals Ethical Use of AI Will Be a Competitive Business Advantage • Business Wire • 06/18/2024 01:00:00 PM
- Form 4 - Statement of changes in beneficial ownership of securities • Edgar (US Regulatory) • 06/14/2024 09:16:51 PM
- Form 4 - Statement of changes in beneficial ownership of securities • Edgar (US Regulatory) • 06/12/2024 08:35:10 PM
- Form 4 - Statement of changes in beneficial ownership of securities • Edgar (US Regulatory) • 06/11/2024 10:31:03 PM
- Form 144 - Report of proposed sale of securities • Edgar (US Regulatory) • 06/10/2024 08:42:45 PM
- Form 8-K - Current report • Edgar (US Regulatory) • 06/10/2024 08:16:54 PM
- Form 4 - Statement of changes in beneficial ownership of securities • Edgar (US Regulatory) • 06/08/2024 01:52:25 AM
- Form 4 - Statement of changes in beneficial ownership of securities • Edgar (US Regulatory) • 06/07/2024 09:36:32 PM
- Form 4 - Statement of changes in beneficial ownership of securities • Edgar (US Regulatory) • 06/07/2024 08:58:59 PM
- Form 4 - Statement of changes in beneficial ownership of securities • Edgar (US Regulatory) • 06/07/2024 08:35:47 PM
- Form 4 - Statement of changes in beneficial ownership of securities • Edgar (US Regulatory) • 06/07/2024 08:30:59 PM
- Form 144 - Report of proposed sale of securities • Edgar (US Regulatory) • 06/07/2024 08:26:05 PM
- Twilio Invests in Enhanced Interoperability with Data Platforms and Data Warehouses with Launch of Linked Audiences • Business Wire • 06/05/2024 01:00:00 PM
- Form DEFA14A - Additional definitive proxy soliciting materials and Rule 14(a)(12) material • Edgar (US Regulatory) • 06/04/2024 09:29:26 PM
- Form DEFA14A - Additional definitive proxy soliciting materials and Rule 14(a)(12) material • Edgar (US Regulatory) • 05/24/2024 08:14:32 PM
- Form 4 - Statement of changes in beneficial ownership of securities • Edgar (US Regulatory) • 05/21/2024 09:15:42 PM
- Form 4 - Statement of changes in beneficial ownership of securities • Edgar (US Regulatory) • 05/21/2024 09:11:02 PM
- Form 144 - Report of proposed sale of securities • Edgar (US Regulatory) • 05/20/2024 08:39:23 PM
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