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Twilio (TWLO) Up 32.6% Since Last Earnings Report: Can It Continue?

It has been about a month since the last earnings report for Twilio (TWLO). Shares have added about 32.6% 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 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 Posts Better-Than-Expected Q1 Earnings

Twilio reported better-than-expected results in the first quarter of 2023. The company reported non-GAAP earnings of 47 cents per share in the first quarter, registering a solid improvement from the year-ago quarter’s break-even earnings.

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The year-over-year growth in non-GAAP earnings was primarily due to higher revenues and cost savings through headcount reductions. The bottom line also surpassed the Zacks Consensus Estimate of 20 cents per share.

Revenue Details

The cloud-based communications platform-as-a-service provider reported revenues of $1.01 billion. The figure improved by 15% year over year and surpassed the consensus mark of $999.8 million.

TWLO has been benefiting from the constant expansion of its international business and the continuous acceleration of digital transformation projects across several industries. The top line was primarily driven by the enhancement of customer experiences across various product portfolios like Segment, Flex and Engage, which are its fastest-growing software-as-a-service products at present.

Twilio’s dollar-based net expansion rate was 106% in the reported quarter, down from 110% in the previous quarter and 127% in the year-ago quarter. The company’s active customer accounts increased to 300,000 as of Mar 31, 2023 from 290,000 at the end of the fourth quarter of 2022 and 268,000 as of Mar 31, 2022.

Operating Results

The non-GAAP gross profit climbed 14.3% year over year to $526.1 million. However, the non-GAAP gross margin contracted 100 basis points (bps) to 52%.

Twilio reported a first-quarter non-GAAP operating income of $103.8 million, up from the year-ago quarter’s non-GAAP operating profit of $5 million. The non-GAAP operating margin was 10% in the first quarter, up from 1% in the year-ago quarter.

General & administrative expenses on a non-GAAP basis decreased 9.1% to $76.8 million and accounted for 8% of the quarterly revenues. Research & development expenses on a non-GAAP basis increased 1.4% year over year to $156.8 million and made up 16% of the quarterly revenues.

Non-GAAP sales & marketing expenses declined 12.6% to $188.8 million. The same represented 19% of first-quarter revenues.

Balance Sheet

The company exited the January-March 2023 quarter with cash and cash equivalents and short-term marketable securities of $3.95 billion, down from $4.16 billion at the end of the fourth quarter of 2022. As of Mar 31, 2023, TWLO’s long-term debt was $987.8 million.

Second-Quarter 2023 Guidance

For the current quarter ending Jun 31, 2023, the company anticipates revenues between $980 million and $990 billion, suggesting year-over-year growth of 4% to 5%. Twilio forecast non-GAAP earnings between 27 cents and 31 cents per share for the second quarter of 2023. Management estimates the non-GAAP income from operations in the range of $65-$75 million.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended upward during the past month.

The consensus estimate has shifted 19.9% due to these changes.

VGM Scores

Currently, Twilio has an average Growth Score of C, however its Momentum Score is doing a lot better with an A. However, 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.

Outlook

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

Performance of an Industry Player

Twilio belongs to the Zacks Internet - Software industry. Another stock from the same industry, Meta Platforms (META), has gained 13.1% over the past month. More than a month has passed since the company reported results for the quarter ended March 2023.

Meta Platforms reported revenues of $28.65 billion in the last reported quarter, representing a year-over-year change of +2.6%. EPS of $2.64 for the same period compares with $2.72 a year ago.

For the current quarter, Meta Platforms is expected to post earnings of $2.82 per share, indicating a change of +14.6% from the year-ago quarter. The Zacks Consensus Estimate has changed +1% over the last 30 days.

The overall direction and magnitude of estimate revisions translate into a Zacks Rank #1 (Strong Buy) for Meta Platforms. Also, the stock has a VGM Score of C.

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