Twilio
Until a few months ago, Twilio was considered one of the hottest growth stocks. The company's product helps app developers add communication features to their apps and have quickly become part of many major apps. However, shares are certainly expensive with a $56 billion market cap and $2.5 billion in revenue.
Inside the Numbers
In Q3, Twilio reported adjusted earnings per share of $0.01 per share, topping analysts' expectations of a loss of $0.15 per share. Unadjusted EPS came in at a loss of $1.26 per share which was worse than last year's loss of $0.74 per share.
Revenue came in at $740 million which was above expectations of $684 million. It was also a 68% improvement from last year's $440 million. However, revenue growth is clearly decelerating, and the company has failed to make progress in other categories like earnings, cash flow, or margins.
However, shares were down due to its weaker than expected Q4 forecast of a loss of $0.23 to $0.26 per share compared to expectations of an $0.08 per share loss.
Stock Price Outlook
Twilio is now down 32% from its highs, earlier in the year. The company continues to focus on maximizing growth rather than earnings or cash flow. Until recently, the market has rewarded this strategy as the stock was up by more than 900% since its debut in mid 2016 and early 2021. However, this strategy becomes less attractive to investors during periods of accelerating economic growth, when they can find higher rates of earnings growth in a wide variety of industries at much better valuations.
Twilio also faces some additional challenges as it faces tough year-over-year comps due to an acceleration in growth during the pandemic. Of course, the risk of a sharp and deep pullback is enhanced in high-multiple stocks like TWLO due to any type of earnings or growth stumble especially when investors have embedded lofty future expectations for growth and margin expansion.
