2023-05-03 16:23:29 ET
Summary
- The monthly candles for February and March 2023 show a shadow that indicates bearish pressure.
- The long-term charts indicate that Twilio's stock is experiencing a continuous downtrend with no signs of reversal, indicating the likelihood of further consolidation and bearish pressure.
- Investors should monitor Twilio's progress in achieving profitable growth, maintain existing positions, and wait for potential reversal indications.
This article focuses on the financial performance of Twilio Inc. (TWLO), specifically after the Q4 2022 earnings report, which presents both remarkable revenue growth and persistent challenges in profitability and expansion. Additionally, the technical factors contributing to Twilio's bearish stock price pressure are analyzed, providing insights for investors navigating the current market landscape. By offering a comprehensive view of Twilio's financial standing and market position, the objective is to equip investors with the knowledge required to make informed decisions regarding their investment strategies. The stock price of Twilio has yet to show any signs of reversal, and the market is likely to experience further consolidation accompanied by increased bearish pressure.
Financial Performance
Twilio's Q4 2022 earnings report showcased a 22% year-over-year increase in revenue, amounting to $1.02 billion, and a 35% rise for the entire year, totaling $3.83 billion. With active customer accounts exceeding 290,000, Twilio is undergoing significant changes to its leadership, organizational structure, and capital allocation strategy. This includes implementing a business unit structure and executive updates to improve execution and drive better focus, which may prove beneficial in the long run. Furthermore, Twilio's Board of Directors has authorized a $1.0 billion share repurchase program, typically seen as a positive market signal.
However, Twilio experienced a GAAP loss from operations of $218.6 million in Q4 2022 and $1.2 billion for the full year. These figures are compared to losses of $283.6 million and $915.6 million, respectively, for the same periods in 2021. Additionally, the Dollar-Based Net Expansion Rate decreased to 110% in Q4 2022 from 126% in Q4 2021. The company also announced a 17% workforce reduction and the departure of Chief Product Officer, Eyal Manor.
A Closer Look at Per-Share Basis
Investors often view stock-based compensation unfavorably as it dilutes their shareholding in a company. Despite Twilio's remarkable revenue growth, the distribution of new shares to employees has reduced this growth on a per-share basis. Since 2017, Twilio's revenue has surged by over 2,000%. Nonetheless, accounting for employee-issued shares during this period reveals a growth of around 730% as shown in the chart below.
Twilio's approach to addressing stock-based compensation is tied to long-term employee remuneration agreements, and the company may consider using share buybacks as an indirect solution to mitigate the impact. With a strong balance sheet, including $4.16 billion in cash and short-term investments and $987 million in debt, Twilio can initiate share buybacks while working towards generating positive free cash flow. In fact, Twilio announced a $1 billion share repurchase program during its Q4 2022 earnings report, which will be funded by part of its net cash position. The company aims to achieve free cash flow positivity in 2023, providing further support for the repurchase plan.
As a reaction to the present economic conditions characterized by inflation and elevated interest rates, Twilio is concentrating on profitable growth. However, the company's stock price has fallen to levels reminiscent of its first two years post-IPO. Twilio grapples with achieving profitability and expansion, and despite the appealing stock price, the strategies employed by the organization will need time to materialize and eventually influence its performance in the long run.
Understanding Twilio's Bearish Pressure
The technical analysis of Twilio also suggests that the downtrend, which commenced in 2021, is yet to be completed as the stock continues to appear weak. A long-term view of Twilio can be observed through the quarterly chart below, illustrating the stock's decline to levels similar to those at the beginning of its ascent from the 2018 lows. Notably, the steep price decline has not shown signs of reversal from its current bottom. The first quarter of 2023 displays a candle within the range of the final quarter of 2022, indicating that the stock has been compressed at a lower boundary without any signs of reversal or bottoming out at these levels. The stock price is likely to continue consolidating at its current level, with a possibility of further downward movement.
The massive decline in Twilio's stock price is attributed to various technical factors, as illustrated by the company's monthly chart below. The stock experienced a parabolic increase of 1,905.7% from its 2017 lows of $22.80 to its 2021 highs of $457.30. Parabolic price increases often result in steep reversals of similar magnitude, which is evident in Twilio's price decline from its 2021 high back to its lows. Twilio reached a high of $79.70 in February 2023, leaving a shadow on the monthly candle, followed by an inside candle for March 2023, signifying price compression. The breach below March 2023 lows led to a further decline toward the lower support region. The strongly bearish April 2023 candle closed at the lows, indicating persistent bearish pressure on Twilio's stock price, with a likelihood of continued acceleration toward lower levels. Although the RSI level is oversold, the stock's retreat from its parabolic highs tends to ignore oversold conditions.
The bearish pressure seen in Twilio's quarterly and monthly charts can be further understood by examining the weekly chart. A head and shoulders pattern emerged in 2021 before the initiation of the significant drop. This pattern serves as the base for Twilio's future decline in value. The true bearish pressure surfaced after the neckline break, with the stock continuing its downward trajectory. The stock's decline also broke the blue support line, which was the baseline support for the parabolic move, damaging the near-term bounce scenario. As the price broke the blue trend line, the stock reduced its range and continued consolidating. This consolidation below the blue trend line exhibits shadows at the resistance area, as indicated by the red arrows in the chart below. These red arrows represent selling opportunities for traders and investors in the near-term outlook. Recently, Twilio's stock price below the blue line has also formed bearish patterns, as displayed by the red channel. A break below $41 could potentially extend the decline to significantly lower levels in the Twilio stock price.
Investors who have acquired Twilio shares are advised to hold their positions. According to the present technical analysis, there is no indication of an imminent market reversal. As the stock price is descending from its parabolic peak, support levels are susceptible to further decline. Investors should exercise patience and wait for signs of reversal before considering buying of additional Twilio shares.
Final Thoughts and Action for Investors
Twilio has demonstrated remarkable revenue growth, although the company grapples with issues surrounding profitability and expansion. While the current stock price may seem appealing, it is important to note that the strategies Twilio has employed, including share buybacks and organizational changes, will take time to manifest and impact the company's long-term performance. In light of the prevailing economic conditions, Twilio is concentrating on achieving profitable growth. Consequently, investors should monitor the company's progress closely and adjust their strategies as needed. On the other hand, the technical analysis of Twilio's stock reveals a continuous downtrend momentum with no imminent signs of reversal, as the stock exhibits weakness and ongoing consolidation. Investors are encouraged to be patient, maintaining their existing positions and waiting for potential reversal indications. The bearish pressure on Twilio's stock, as observed in its quarterly, monthly, and weekly charts, implies that support levels might be broken further as the company's stock price retreats from its parabolic heights. Furthermore, if the price manages to surpass the $85 mark, it will alleviate the short-term bearish momentum and initiate a phase of consolidation with broad price ranges. Until this occurs, investors should anticipate continued downward movement.
For further details see:
Twilio: Bearish Pressure Is Likely To Continue (Technical Analysis)