2023-05-09 18:30:53 ET
Summary
- Twilio beats on top and bottom lines for Q1.
- Q2 guidance well below street estimates.
- Internal metrics look a bit shaky.
After the bell on Tuesday, we received first quarter results from customer engagement platform Twilio ( TWLO ). This was one of the names that soared in 2020 thanks to significant revenue growth rates. Since then, however, results have not been as pretty, as growth percentages have slowed down tremendously. With guidance for Q2 being well below expectations, shares took a tumble.
For Q1, Twilio reported revenues just over $1 billion, mostly in line with estimates that had come down since the prior report that featured light guidance. This was 15% growth over last year's quarter, which seems nice, but that quarter had seen growth of 48%. Just a few years ago, Twilio's top line was growing even faster, hitting 86% in Q2 2019 for example, but that growth has all but collapsed now.
The main issue for Twilio has been getting this growth. When excluding one-time items, the company's operations lost around $120 million in the quarter. This was a nearly $100 million improvement over the prior year period, but that's still a sizable loss if you annualize it. On a non-GAAP basis, the company's 47 cent profit smashed expectations for 21 cents, but there were twelve adjustments from GAAP to non-GAAP earnings per share so investors may wonder about the quality of the beat.
One of the reasons why I've been a bit worried on Twilio in recent quarters is a set of weakening internal metrics. Account growth of 32,000 for the past 12 months is toward the low end of where it has been in recent years, and like revenues, was the lowest percentage increase in some time. Also, as the chart below shows, the company's dollar-based net expansion rate has dipped another four percentage points sequentially to 106%. At the current trend, this is only a quarter or two away from dipping below 100%, which would mean revenues from comparable active accounts would be declining year over year.
Dollar-Based Net Expansion Rate (Twilio Earnings Reports)
Unfortunately for Twilio investors, the worst part of the report was guidance for the current period. For Q2, management is calling for revenues in a range of $980 million to $990 million, or growth of just 4% to 5% over the prior year period. While this company usually guides conservatively, the street was looking for roughly $1.05 billion or more than 11% growth, so this guidance is very light this time around.
The one good thing for Twilio is that it has a healthy balance sheet. While cash burn was a little over $100 million in the quarter, the company had around $4 billion in cash and short term investments on hand at the end of the period. That has allowed the company to start a share repurchase plan, and the above release contained the following update on this item:
In February Twilio announced the authorization of a share repurchase program pursuant to which Twilio may repurchase up to $1.0 billion of its outstanding Class A common stock. Twilio announced its intention to execute up to $500 million of this in the first six months of the program, subject to legal requirements, price, and economic market conditions. As of today, Twilio has completed repurchases representing approximately 25% of the total program amount. The program is set to expire on December 31, 2024.
As for Twilio shares, they dropped more than 12% in Tuesday's after-hours session, falling below $50 again. Going into the report, the average price target on the street was nearly $82, implying significant upside, but you have to figure that the weak guidance will dent that a little. Of course, we're just about two years removed from that average valuation being nearly $500 when shares were soaring, and now the stock is getting much closer to its multi-year low in the low $40s.
In the end, Twilio reported another set of mixed results, but it was the awful guidance that was the biggest headline. Q1 numbers beat lowered estimates, but revenue growth continues to slow and key metrics are not looking great. For the current period, management called for almost no revenue growth over last year's period, which was well below estimates, sending shares lower. If the company doesn't get these revenue growth numbers to improve in the next few quarters, I could easily see shares testing that multi-year low.
For further details see:
Twilio Sinks On Awful Guidance