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A month has gone by since the last earnings report for Twilio (TWLO). Shares have added about 2% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Twilio 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.
Twilio Q3 Earnings and Revenues Top Estimates, Up Y/Y
Twilio reported better-than-expected third-quarter 2020 results. The company posted non-GAAP earnings of 4 cents per share for the quarter, while the Zacks Consensus Estimate was pegged at a loss of 5 cents.
The non-GAAP bottom-line figures also jumped 33.3% from the year-ago quarter’s 3 cents. This year-over-year upsurge was mainly driven by stellar revenue growth.
Twilio’s quarterly revenues surged 52% year over year to $448 million and also surpassed the Zacks Consensus Estimate of $404.5 million on increase in clientele and the Sendgrid buyout. The growing adoption of Twilio Flex is also a tailwind.
Twilio is benefiting from the accelerated digital-transformation projects across many industries in the wake of the global lockdown. Organizations are reconfiguring their set-up for a work-from-home operational environment and making nearly 100% e-commerce a reality.
Twilio’s top 10 active customer accounts contributed to 14% of its total revenues, down from the previous quarter’s 15%, and up from the prior-year quarter’s 13%. WhatsApp represented approximately 6% of revenues during the third quarter compared with the year-ago quarter’s 7%.
The company’s dollar-based net expansion rate was 137% in the reported quarter, down from the prior-year period’s 132%.
Twilio’s active customer accounts increased to more than 208,000 as of Sep 30, 2020 from more than 172,000 as of Sep 30, 2019. In the third quarter, Twilio added more than 8,000 active customers.
Non-GAAP gross profit climbed 42.5% year over year to $246 million. However, gross margin contracted 300 basis points (bps) to 55% mainly due to a 130-basis point negative impact from Application to Person or A2P fees.
Twilio reported third-quarter non-GAAP operating income of $7.3 million, marking a strong improvement from the operating loss of $3.6 million posted in the year-ago quarter. Non-GAAP operating margin improved to positive 2% from negative 1% in the year-ago quarter.
The company exited the July-September quarter with cash and cash equivalents plus short-term marketable securities of $3.3 billion, up sequentially from $1.9 billion.
During the first nine months of 2020, the company generated $17.8 million of cash from operational activities.
Twilio issued a dismal bottom-line outlook for the December-end quarter. The company forecasts non-GAAP loss per share between 8 cents and 11 cents.
We believe the company’s drab bottom-line outlook reflects elevated spending on its expansion plans. Twilio has entered into new product and geography markets to continue its high growth momentum. Moreover, earlier this month the firm entered into an agreement to acquire customer-data startup Segment Inc. for $3.2 billion.
For the current quarter, the company anticipates revenues between $450 million and $455 million. It estimates non-GAAP operation loss in the range of $10 million to $15 million.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended downward during the past month. The consensus estimate has shifted -27.38% due to these changes.
At this time, Twilio has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. Charting a somewhat similar path, the stock was allocated a grade of F on the value side, putting it in the lowest quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Twilio has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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