Yahoo Finance Twilio (TWLO) Down 2.7% Since Last Earnings Report: Can It Rebound?
It has been about a month since the last earnings report for Twilio (TWLO). Shares have lost about 2.7% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Twilio due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Twilio Q1 Earnings and Revenues Beat Estimates
Twilio reported better-than-expected first-quarter 2024 results. The the programmable communication tool provider reported non-GAAP earnings of 80 cents per share, which surpassed the Zacks Consensus Estimate of 60 cents and came above management’s guidance range of 56-60 cents.
The bottom line also witnessed a robust improvement from the year-ago quarter’s earnings of 47 cents. The strong year-over-year growth in earnings was primarily driven by increased revenues, lower expenses and a reduction in the outstanding share count.
Revenue Details
The cloud-based communications platform-as-a-service provider registered revenues of $1.05 billion, which surpassed the Zacks Consensus Estimate of $1.03 billion as well as came ahead of management’s guidance range of $1.025-$1.035 billion. Year over year, first-quarter revenues improved 4% on a reported basis and 7% organically.
On its earnings conference call, Twilio stated that the first-quarter top-line performance was negatively impacted by challenges from customers in the crypto industry and the unsetting of the software component of the Zipwhip business. These factors resulted in a 210 basis points (bps) headwind to the company’s first-quarter organic revenue growth. Excluding these factors, Twilio’s first-quarter organic revenue growth was 9%.
Segment-wise, revenues from the Communications division came in at $972 million, up 4% year over year on a reported basis and 7% organically. Segment division’s sales grew 2% year over year to $75 million.
Twilio’s dollar-based net expansion rate was 102% in the reported quarter, flat with the previous quarter but down from 106% in the year-ago quarter. The company’s first-quarter dollar-based net expansion rates for the Communications and Segment divisions were 103% and 92%, respectively.
Active customer accounts increased to more than 313,000 as of Mar 31, 2024 from 305,000 at the end of the fourth quarter of 2023. The figure was 300,000 as of Mar 31, 2023. As of Mar 31, 2024, Communications and Segment active customer accounts were more than 305,000 and 7,900, respectively.
Operating Results
The non-GAAP gross profit increased 8% year over year to $566 million. The non-GAAP gross margin expanded 180 bps year over year and 170 bps sequentially to 54.1%, primarily driven by a lower international messaging mix and lower hosting fees as a result of larger credits on the company’s cloud spend. The first-quarter non-GAAP gross margin for the Communications and Segment divisions came in at 52.2% and 77.6%, respectively.
The non-GAAP operating income jumped 54% year over year to $160 million. The non-GAAP operating margin of 15.2% for the first quarter expended 490 bps on a year-over-year basis but contracted 80 bps sequentially.
General & administrative (G&A) expenses on a non-GAAP basis decreased to $75.6 million from $76.8 million in the year-ago quarter. G&A expenses accounted for 7.2% of quarterly revenues, down from 7.6% in the year-ago quarter. Research & development (R&D) expenditures on a non-GAAP basis increased 5.4% year over year to $165.2 million. R&D expenses accounted for 15.8% of first-quarter revenues, up from 15.6% in the year-ago quarter.
Non-GAAP sales & marketing costs declined 12.3% to $165.6 million. The same represented 15.8% of first-quarter revenues, lower than 18.8% in the year-ago quarter.
Balance Sheet
The company exited the March quarter with cash and cash equivalents and short-term marketable securities of $3.83 billion, down from $4.01 billion at the fourth-quarter 2023 end. As of Mar 31, 2024, TWLO’s long-term debt was $989.4 million.
During the first quarter, Twilio generated operating cash flow of $190.1 million and free cash flow of $177.3 million. Twilio repurchased stocks worth $356.9 million during the first quarter. Moreover, the company revealed that it intends to complete the remaining $1.5 billion of authorized repurchases by December 2024.
Second-Quarter Guidance
For the current quarter ending Jun 30, 2024, TWLO anticipates revenues between $1.05 billion and $1.06 billion, which indicates a year-over-year increase of 1-2% on a reported basis and 4-5% on an organic basis. The Zacks Consensus Estimate for second-quarter revenues is pegged at $1.07 billion.
Twilio projects non-GAAP income from operations to be in the range of $135-$145 million. It forecasts non-GAAP earnings in the range of 64-68 cents per share. The consensus mark for second-quarter earnings currently stands at 65 cents per share.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates review.
The consensus estimate has shifted 22.22% due to these changes.
VGM Scores
At this time, Twilio has a strong Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Twilio has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Performance of an Industry Player
Twilio is part of the Zacks Internet - Software industry. Over the past month, Fortinet (FTNT), a stock from the same industry, has gained 0.1%. The company reported its results for the quarter ended March 2024 more than a month ago.
Fortinet reported revenues of $1.35 billion in the last reported quarter, representing a year-over-year change of +7.2%. EPS of $0.43 for the same period compares with $0.34 a year ago.
Fortinet is expected to post earnings of $0.41 per share for the current quarter, representing a year-over-year change of +7.9%. Over the last 30 days, the Zacks Consensus Estimate has changed +0.5%.
Fortinet has a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of B.
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