Twilio (TWLO: $56) released its third-quarter results on Wednesday, reporting $1.03 billion in revenues, up barely 5% compared to $980 million a year ago. The company posted a profit of $110 million, against a loss of $50 million, or $0.29, with a beat on estimates at the top and bottom lines, coupled with a raise in the full-year guidance leading the stock to rally following the results.
The company has continued its streak of steady customer acquisitions, now serving 306,000 active accounts, up from 280,000 a year ago. Twilio, however, experienced a significant trough in its net dollar-based expansion rate at 101%, down from 122% last year. This can mostly be attributed to higher contraction and churn in its customer data platform, Segment, which it acquired a few years ago, coupled with slower growth across its other products.
Twilio is a cloud communications platform that enables businesses to build and deliver customer engagement experiences across multiple channels, including voice, text, chat, and video. Its platform is highly flexible and scalable, making it easy for businesses of all sizes to get started and grow. Its business model is based on a subscription fee for access to its platform and APIs. Twilio charges businesses based on the number of messages, calls, and other communications they send and receive through its platform.
Twilio's platform is easy to use, even for businesses with no prior experience with cloud communications, and it provides a variety of resources and support to help businesses get started and use its platform effectively.
Twilio integrates deeply with other popular cloud platforms, such as Salesforce, Shopify, and Amazon Web Services. This makes it easy for businesses to build end-to-end customer engagement solutions that leverage the best-of-breed technologies. The company offers several AI-powered features that help businesses automate and personalize their communication experiences. For example, its Predictive Dialer can automatically dial leads based on their likelihood of converting, and Twilio's Voice Intelligence can transcribe and analyze phone calls for insights. The platform is available in over 180 countries, giving businesses the ability to reach their customers wherever they are.
Twilio had a number of sizable new customer acquisitions during the quarter, which included a leading Latin American eCommerce platform, one of the largest North American financial services companies, and more. The company further signed a landmark agreement with Softbank, which will now be offering Twilio’s services through its channels for the Japanese market, helping its foray into Southeast Asia.
Investors appreciate the remarkable synergies that the company’s products, platforms, and copious amounts of user data are helping create. This makes Twilio’s efforts in generative AI and machine learning all the more meaningful, creating substantial moats against competitive forces going forward, all the while helping enterprise customers drive efficiencies and cost savings.
The stock is up 14% YTD but is still down dramatically since its peak in 2021, and as such it now trades at a little over 2 times sales. In addition to this, Twilio has over 30% net cash, meaning that its cash reserves at $3.9 billion, make up a significant portion of its market cap of $10 billion. The company is using this to repurchase stock with $1 billion in authorizations, having just $1.2 billion in debt, and $130 million in cash flow.
We would like to see revenue growth move higher in this coming year, as the company has a history of strong revenue growth. The last four years were $1.1 billion, $1.8 billion, $2.8 billion, and $3.8 billion. But 2023 is looking to hit just $4.1 billion. The company is now profitable, after years of waiting, which we are quite pleased about. And that bottom line trend is what Wall Street cares about now and it's ramping up fast. Consensus is looking for 30% earnings growth next year. Admittedly, we're here for the historical hypergrowth revenue narrative, so if sales don’t pick up, we will have to consider moving on to something more exciting. It could happen. Quite a few people think sales will hit $4.6 billion next year, which gets the engine humming again.
For now, our Target remains $135 and the stock is below our Sell Price of $65. In light of the revenue slowdown, we have to lower our Target to $80 and we are going to set a hard stop at $53 where it was last week. If it moves back down, we will have to let this wonderful company go. We added it at $52 in 2016 and watched it shoot higher to $400 two summers ago. It will hit that level again some day . . . but the slower sales growth gets, the longer that scenario will need to play out.