Why Is Twilio Inc. (TWLO) Up 13% Since Last Earnings Report?

It has been about a month since the last earnings report for Twilio Inc. (TWLO). Shares have added about 13% 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 Inc. 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 catalysts.

Twilio Q1 Result

Twilio reported better-than-expected first-quarter 2020 results and issued an upbeat guidance for the second quarter. The company posted first-quarter non-GAAP earnings of 6 cents per share, while the Zacks Consensus Estimate was pegged at a loss of 11 cents.

The non-GAAP bottom-line figure also climbed 20% from the year-ago quarter’s 5 cents. The year-over-year surge was mainly driven by stellar revenue growth and efficient cost management.

Twilio’s quarterly revenues surged 57% year over year to $364.9 million and also surpassed the Zacks Consensus Estimate of $328 million on increase in clientele and the Sendgrid buyout. Growing adoption of Twilio Flex is also a tailwind.

During the quarter, the company witnessed waning demand from ride-sharing, hospitality and travel industries, which have been hit hard by the coronavirus-led global lockdown. However, increased demand from health care, education, retail and crisis management organizations more than offset the negative impact of the aforementioned factors.

Additionally, Twilio is benefiting from the accelerated digital-transformation projects across many industries in the wake of coronavirus-led global lockdown. Organizations are reconfiguring their set-up for a work-from-home operational environment and making nearly 100% e-commerce a reality.

Quarterly Details

Twilio’s top 10 active customer accounts contributed to 15% of its total revenues compared with the 14% for the last quarter as well as the first quarter of 2019. WhatsApp represented approximately 7% of revenues in the quarter.

The company’s dollar-based net expansion rate was 143% in the reported quarter, up from the prior-year period’s 142%.

The company’s active customer accounts increased to 190,000 as of Mar 31, 2020 from 154,797 on Mar 31, 2019. In the first quarter, Twilio added 11,000 active customer accounts, which included AB InBev and Standard Chartered Bank.

Operating Results

Non-GAAP gross profit soared 52.4% year over year to $207.8 million. However, gross margin contracted 100 basis points (bps) to 57% mainly due to a 70-basis point negative impact from Application to Person or A2P fees.

The company’s non-GAAP operating expenses soared 51.6% year over year to $201.7 million. Nonetheless, as a percentage of revenues, non-GAAP operating expenses shrunk 200 bps to 55%.

As a result, Twilio’s first-quarter operating income jumped 81% year over year to $6.1 million, while margin expanded 100 bps to 2%.

Balance Sheet

The company exited the reported quarter with cash and cash equivalents plus short-term marketable securities of $1.84 billion, down from $1.85 billion sequentially.

During the March-end quarter, the company generated $15.5 million of cash from operational activities.

Outlook

Twilio believes with more than $1.84 billion in cash and marketable securities, it is well positioned to weather the coronavirus crisis. However, citing uncertainties surrounding the impact of COVID-19, it withdrew the full-year 2020 guidance.

For 2020, the company had earlier projected revenues at $1.475-$1.479 billion, indicating year-over-year growth of 30-31%. Twilio was expecting gross margins to continue to be in the mid-to-high 50s. Moreover, it had anticipated reporting non-GAAP loss per share in the 20-14 cents band this year.

Nevertheless, Twilio has issued an encouraging guidance for the June-end quarter. For the quarter, the company anticipates revenues between $365 million and $370 million. It projects reporting non-GAAP operation loss in the range of $15 million to $20 million. The company also forecasts non-GAAP loss per share between 8 cents and 11 cents.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended upward during the past month. The consensus estimate has shifted -17.89% due to these changes.

VGM Scores

At this time, Twilio Inc. has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. Charting a somewhat similar path, 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. It comes with little surprise Twilio Inc. has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.

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