Twilio’s stock tanks on tepid earnings forecast

Shares of Twilio Inc. fell more than 10% in post-market trading after the communications and customer engagement software provider offered a third-quarter profit forecast that fell short of expectations.

The drop came despite a solid showing in the previous three months. Twilio reported second-quarter earnings before certain costs such as stock compensation of $1.19 per share, easily beating the Street’s consensus estimate of $1.06 per share.

Revenue for the quarter rose 13% to $1.23 billion, surpassing the $1.19 billion analyst target. That helped Twilio to cement an overall profit of $22.4 million in the quarter, rising from a $31.8 million loss in the year-ago period.

Twilio is best known for selling developer tools that make it possible to embed capabilities such as voice, text messages and video into software applications. The company’s software also streamlines communications for cloud-based apps. In addition, it has a growing business selling tools for customer engagement, such as its Twilio Engage growth automation platform that’s used by marketers to improve their customer relationships by creating more personalized experiences.

Chief Executive Khozema Shipchandler (pictured), who replaced the company’s co-founder Jeff Lawson just over a year ago, said the accelerating revenue and growing profitability is evidence that his team’s focus and execution is beginning to pay off. “During the quarter, Twilio showcased our latest innovations at our user conference, further cementing our place in the ecosystem as the infrastructure layer for customer experience,” the CEO pointed out.

Shipchandler was talking about the SIGNAL 2025 event in May, where the company unveiled a new customer engagement platform built for an artificial intelligence and data-driven future, along with a new strategic partnership with Microsoft Corp. to advance conversational AI.

Those updates appear to have been well received, if Twilio’s growing customer base is any indication. The company said it increased its total number of active customer accounts to 349,000 at the end of the quarter, up from just 316,000 one year earlier.

Twilio’s stock had already dropped more than 6% at the closing bell in today’s trading session, indicating a lack of confidence among investors. And their worst fears were confirmed when the company offered its guidance for the current quarter. Executives said the company is aiming for earnings of between $1.01 and $1.06 per share, a forecast that came in well below Wall Street’s consensus estimate of $1.14 per share, pushing the stock down even more in extended trading.

On the other hand, Twilio did offer a more positive revenue forecast, saying it’s looking for sales of between $1.25 billion and $1.26 billion in the current quarter, above the $1.22 billion estimate.

Twilio also raised its free cash flow target from a range of $850 million to $875 million, to a new range of $875 million to $900 million.

Despite the dismal after-hours performance of Twilio’s stock, it’s still up just over 13% in the year to date, outpacing the broader S&P 500 index, which has gained just over 7% in the same period.

Photo: Twilio