Key points
- Twilio is a leading communications as a platform (CPaaS) provider offering a wide range of easy-to-integrate communications APIs for businesses.
- Twilio shares fell more than 13% in reaction to its fourth-quarter 2023 earnings report, which beat EPS estimates by 29 cents on 5% year-over-year revenue growth, but lowered the Q1 2024 revenue guidance.
- Twilio could divest some of its assets or even be an acquisition target as its valuation becomes more reasonable.
- 5 stocks we like best from Twilio
Twilio Inc. NYSE: TWLO is a leading provider of cloud-based communications platform as a service (CPaaS). This business services company was named a leader in the 2023 Gartner Magic Quadrant for CPaaS. Twilio offers a wide range of communications services to businesses, ranging from voice, messaging, user authentication, email, video, and artificial intelligence (AI). The company allows businesses to integrate a wide range of channels and services to better communicate with customers. They were among the first movers in the CPaaS space.
Twilio offers scalable infrastructure and a pay-as-you-go model, adding flexibility to adapt to the needs of its customers. Twilio is known for its developer-centric and easy-to-integrate APIs, supported by a strong partner ecosystem. Its shares tumbled more than 13% in its fourth-quarter 2023 earnings report. Here are four compelling reasons to use this sell-off as an opportunity to take a look at the stock.
1. Twilio is gaining ground on its path to profitability.
Although Twilio’s growth rate has slowed from growth trajectories of 48% year-over-year in the first quarter of 2023 to 5% year-over-year in the latest quarter, the company is approaching GAAP profitability. The company has beaten consensus EPS estimates for the past five years, and the fourth quarter of 2023 was no exception. The focus on growth has been replaced by a focus on the path to profitability.
The company lost “only” $50 million in operating losses (excluding restructuring and impairment charges) in the quarter compared to more than $210 million in the same period a year earlier. Its non-GAAP operating profit rose to $172.6 million, up from $32.9 million in the year-ago period. Active customer accounts flattened out to just over 350,000 as the company began losing net accounts. However, Twilio added 5% more customers overall in 2023. Remember that Twilio historically tends to provide modest guidance to surprise on the upside with consistent beats. A case in point is that Twilio crushed fourth-quarter consensus estimates by 29 cents 2023, reporting 86 cents per share versus 57 cents. The company also has $4 billion in its war chest in cash.
2. Artificial intelligence (AI) capabilities are gaining traction among customers.
It’s no surprise that AI is at the forefront of businesses. While the uncertain macroeconomic climate has caused companies to reduce spending on communications, they continue to spend on artificial intelligence to remain competitive and even relevant. Twilio launched CustomerAI in Q3 2023, providing data-driven, predictive predictions about customers. The company is bullish on AI as over 150 customers have already added the service.
For Twilio, communications activities represent more than 80% of revenues. The company has consolidated its business into just two divisions: Communications and Segment. The segment contains its data and applications businesses, which continued to underperform in the quarter, requiring an operational review, of which it will provide an update in March.
3. Twilio landed a 9-figure commitment from a leading cloud communications company.
The company has signed the largest messaging deal in company history with a leading cloud communications company. The deal is a nine-figure commitment. This is a sign of stabilization in the CPaaS industry as companies reopen their portfolios.
4. Twilio is a potential acquisition target.
As Twilio shares tumble, there’s more speculation about divesting some businesses. Rumors are circulating that Dutch messaging startup Bird, formerly known as MessageBird, is in talks with outside investors to make a bid to acquire Twilio. Bird has a market capitalization about one-third that of Twilio. However, Twilio has been under pressure from activist investor Anson Funds to consider selling some or all of its business.
Patrick Walravens, analyst at JMP Securities, chimed in: “From a strategic perspective, we see several possible buyers for the segment, including Amazon Inc. NASDAQ:AMZN, Salesforce Inc. New York Stock Exchange: CRM, Adobe Inc. NASDAQ: ADBE, Snowflake Inc. NYSE: SNOW and private capital. On the other hand, Twilio itself could represent an attractive takeover target, as suggested by reports of privately held MessageBird in talks to raise funds for a ‘long-term’ offering.”
Twilio analyst ratings and price targets I’m on MarketBeat. Twilio peers and competitor actions can be found with MarketBeat Stock Screener.
Daily breakdown of the descending triangle
The daily candlestick chart on TWLO illustrates a descending triangle breakdown pattern. The descending trendline formed at $76.03 on January 22, 2024. It blocked all rebound attempts to lower highs against the flat-bottomed lower trendline at $68.85. TWLO attempted to break out of the descending trend line on the day of the earnings release, but the lowered guidance caused the stock to gap to $64.89 and collapse in the following days. The daily relative strength index (RSI) has fallen below the oversold 30 band. The pullback support levels are at $55.32, $53.63, $52.45, and $51.46.
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