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Twilio (TWLO) Q2 Earnings and Revenues Surpass Estimates

Zacks Equity Research

Twilio Inc. TWLO reported second-quarter 2019 non-GAAP earnings of 3 cents per share, which topped the Zacks Consensus Estimate of 2 cents. Meanwhile, the bottom line was flat on a year-over-year basis.

The company’s revenues soared 86% year over year to $275 million and also surpassed the Zacks Consensus Estimate of $260 million, driven by growth in its core products. Moreover, the acquisition of Sendgrid, completed in February, was a key driver. Growing adoption of Twilio Flex is also a tailwind. The company achieved a $1-billion annual revenue run-rate for the first time.

Given the delay in implementing Verizon’s A2P fee, the company didn’t recognize any A2P related revenues or compressed gross margin in the second quarter. Further, the uncertainty around the exact timing of the implementation prompted the company to remove any expected revenue benefit for third-quarter and the full-year guidance.

Twilio Inc. Price, Consensus and EPS Surprise

Twilio Inc. Price, Consensus and EPS Surprise

Twilio Inc. price-consensus-eps-surprise-chart | Twilio Inc. Quote

Quarterly Details

The company’s base revenues also jumped 90% year over year to $256.7 million. Organic growth for the same was 56% year over year. SendGrid revenues of $46 million grew 28% year over year.

Twilio’s top 10 active customer accounts contributed to 13% of its total revenues, down from 17% in the year-ago period and 14% in the earlier reported quarter.

The company’s dollar-based net expansion rate rose to 140% in the reported quarter from 137% in the prior-year period. However, the metric declined from 146% reported in the sequential quarter. Management noted that SendGrid accretion will have no impact on this metric until the first quarter of 2020.

The company’s active customer accounts increased to 161,869 as of Jun 30, 2019 from 57,350 on Jun 30, 2018. Alone in the second quarter, Twilio added 7,072 active customer accounts.

Operating Results

Non-GAAP gross profit skyrocketed approximately 101% year over year to $163.6 million. Further, gross margin expanded 400 basis points (bps) to 59%. Higher margin revenues from Twilio SendGrid are a tailwind too.

Given the delayed implementation of Verizon’s A2P fees, Twilio’s gross margin was unaffected in the quarter.

The company reported non-GAAP operating income of $1.5 million compared with $2.2 million in the prior-year quarter. While operating margin was flat at 1%.

Balance Sheet

The company exited the quarter under review with cash and cash equivalents plus short-term marketable securities of $1.88 billion compared with $918.9 million sequentially.

During the first six months ending Jun 30, 2019, the company used $13.92 million of cash from operational activities compared with $19.2 million of cash generated in the year-ago period.

Outlook

For the full year, Twilio expects revenues in the range of $1.113-$1.119 billion, up from the $1.102-$1.111 billion band projected earlier. Base revenues are estimated within $1.064-$1.068 billion compared with the previous prediction of $1.062-$1.068 billion.

The company projects non-GAAP earnings per share in the band of 17-18 cents, up from 11-13 cents envisioned earlier.

For the third quarter of 2019, Twilio anticipates revenues between $286 million and $289 million. Base revenues are predicted within $276-$278 million. The company forecasts non-GAAP earnings per share to be 1-2 cents.

Zacks Rank and Stocks to Consider

Twilio currently carries a Zacks Rank #3 (Hold). A few better-ranked stocks in the broader Computer and Technology sector are LogMeIn LOGM, Alteryx AYX and Rosetta Stone RST, each flaunting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rate for LogMeIn, Alteryx and Rosetta Stone is currently estimated at 5%, 13.7% and 12.5%, respectively.

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