Twilio stock in red on weak earnings guidance despite Q4 top line beat

Twilio (NYSE: TWLO) fourth-quarter earnings came in line with estimates while revenue surpassed street estimates comfortably. Yesterday, Twilio’s stock hit a new 52-week high level eclipsing $119 mark. After the earnings announcement, shares of the firm were down above 6% in the extended hours of trading as earnings outlook failed to impress the street.

For the fourth quarter, revenue jumped 77% to $204.3 million while adjusted EPS came in at $0.04. Analysts were expecting earnings to come in at 4 cents per share on revenue of $185.01 million. Last quarter, the company had guided Q4 revenues to be in the range of $183 million to $185 million and adjusted earnings to be between $0.03 and $0.04 per share.

Non-GAAP earnings failed to beat analyst estimates primarily due to an increase in the stock-based compensation and acquisition-related expenses over the prior year. The Q4 loss per share more than doubled to $0.47 compared to the loss of $0.20 per share due to increase in the expenses.

Twilio’s stock has been having a dream run in the bourses. The stock price has skyrocketed about 666% since IPO in the mid-2016 period. In the last 12-months, shares of the firm have jumped 347% due to the strong earnings performance reported by the firm. This year, it has already increased by 30% carrying forward the solid macros from last year.

Key Metrics Performance

One of the important stats looked by the street is active customer accounts. As of December 31, 2018, active customer accounts grew 31% to 64,286 accounts over 48,797 accounts reported last year. It’s worth noting that the cloud-based platform has consistently grown its customer base in the last three years.

Base revenue is an important indicator for investors to see how the business is going to trend in the near term. Since the number excludes any variable contracts entered by the firm, this would give more insights into the future revenue growth potential taking off volatility from variable contracts. Base revenue increased 77% to $186.2 million over last year.

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Looking Ahead

Twilio expects first-quarter revenue to be in the range of $222 million to $225 million and non-GAAP EPS to be flat to $0.01. Base revenue is predicted to come at $212 million to $214 million range.

For the full year 2019, the company expects revenue to the tune of $1.06 billion to $1.07 billion and adjusted earnings in the range of $0.08 to $0.11 per share. Base revenue is forecasted to be between $1.02 billion and $1.03 billion. The company has factored in the SendGrid acquisition into the outlook.

However, the earnings outlook came in below street expectations, while sales topped estimates. Analysts were expecting Q1 earnings to be $0.02 per share and full-year earnings to be $0.16 per share.

Headwinds to consider

Twilio counts marquee names such as Uber, Whatsapp, Netflix (NFLX), Nordstrom (JWN) and eBay (EBAY) as its customers. The company’s voice and messaging services have been the core offering which has seen solid growth due to increased adoption from clients.

In order to diversify and reduce its dependency on core products, the cloud-based platform called Twilio Flex was launched in October. The platform is already used by its clients like Lyft, U-Haul, and Shopify (SHOP) for their contact centers. With more clients started deploying Flex, the company would see improved revenues in 2019. Apart from new product launches, SendGrid and Ytica acquisitions would be a tailwind for the firm in the near future.

However, with increased competition from the likes of Bandwidth.com, Nexmo, Plivo, and Sinch it is important for the company to be innovative and differentiate from its peers in terms of the products and services offered along with affordable pricing would give it an edge over its rivals.

Another important factor which would become a headwind is the revenue dependency from the top 10 customers. At the end of Q3, 10 large customers contributed 18% to the top line.  Within this group, WhatsApp and Uber alone brought in 11% revenues to the company. As both of these firms have variable contracts with Twilio, they can stop using the services at any time without prior intimation, which remains a concern for investors. It’s crucial for the cloud platform to diversify its revenues from the current cohort of customers.

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