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Twilio Inc. (TWLO) Up 0.5% Since Last Earnings Report: Can It Continue?

Zacks Equity Research
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It has been about a month since the last earnings report for Twilio Inc. (TWLO). Shares have added about 0.5% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Twilio Inc. due for a pullback? 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.

Twillio Reports Strong Q1 Results

Twilio reported first-quarter 2019 non-GAAP earnings of 5 cents per share, which topped the Zacks Consensus Estimate of a penny and also reversed the company’s loss of 4 cents in the year-ago quarter.

The company’s first-quarter revenues soared 81% year over year to $233.1 million and also surpassed the Zacks Consensus Estimate of $224 million. Its core products, voice, messaging and e-mail were key growth drivers. Moreover, results were driven by the acquisition of Sendgrid, completed in February.

Quarterly Details

The company’s base revenues also jumped 88% year over year to $220.9 million. Organic growth for Twilio's base revenues was more than 60% year over year while the same for Twilio SendGrid during the sub-period (Since Feb 1) was 30% year over year.

Twilio’s top 10 active customer accounts contributed to 14% of its total revenues, down from 18% in the year-ago period and 20% in the earlier reported quarter.

Moreover, multiple Twilio Flex deals signed in the first quarter are key catalysts. Gaining adoption of new products is driving the company’s dollar-based net expansion rate, which stood at 146% in the reported quarter.

The company’s active customer accounts increased to 154,797 as of Mar 31, 2019 from 53,985 on Mar 31, 2018. Alone in the first quarter, Twilio added more than 90,511 active customer accounts. Twilio SendGrid contributed more than 84,000 to the count.

Operating Results

Non-GAAP gross profit climbed approximately 92% year over year to $136.9 million. Gross margin expanded 300 basis points (bps) to 58%. Higher margin revenues from Twilio SendGrid are a tailwind.

The company reported non-GAAP operating income of $3.4 million against non-GAAP operating loss of $4.7 million in the prior-year quarter.

Balance Sheet

The company exited the quarter under review with cash and cash equivalents plus short-term marketable securities of $918.9 million compared with $748.3million sequentially.

Additionally, during the quarter under consideration, the company used $9.11 million of cash from operational activities compared with $7.98 million of cash generated in the previous reported quarter.

Outlook

For the full year, Twilio expects revenues in the range of $1.102-$1.111 billion, up from the $1.065-$1.077 billion band expected earlier. Base revenues are estimated within $1.062-$1.068 billion, up from the previous prediction of $1.028-$1.036 billion.

The company projects non-GAAP earnings per share in the band of 11-13 cents, up from 8-11 cents envisioned earlier.

For the second quarter of 2019, Twilio anticipates revenues between $262 million and $265 million. Base revenues are estimated within $252-$254 million. The company forecasts non-GAAP earnings per share to be 2-3 cents.

The implementation of Verizon's A2P fee will induce a 50 bps drag in the second quarter and roughly a 100 bps contraction in the overall gross margin thereafter. Nonetheless, SendGrid's higher margin business and growth in Application Services will be a positive.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. The consensus estimate has shifted -20.19% due to these changes.

VGM Scores

Currently, Twilio Inc. has a poor Growth Score of F, however its Momentum Score is doing a bit better with a D. Charting a somewhat similar path, the stock was allocated a grade of F on the value side, putting it in the fifth quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Twilio Inc. has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.



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