What Happened?
Shares of cloud communications infrastructure company Twilio (NYSE:TWLO) jumped 22.8% in the morning session after the company shared impressive financial forecasts during its 2025 Investor Day event, unveiling clearer details about its artificial intelligence capabilities. Twilio expects low double-digit sales growth when it reports earnings for Q4'2024, a notable improvement from earlier guidance of high single-digit growth. On a GAAP basis, operating income is expected to swing into positive territory, a rare achievement for the company, building on recent quarters where it nearly broke even.
In the long term, Twilio expects to achieve an adjusted operating margin as high as 22% by 2027 (ahead of Wall Street's estimates), which could drive $3 billion in free cash flow over the next three years. The profit forecast is partly based on management's conviction that the business can continue to deliver double-digit sales growth, given the abundant AI opportunities. In a further move to return the generated value to shareholders, management announced a $2 billion share buyback plan.
Following the event, Baird analyst William Power upgraded the stock's rating from Hold to Buy, expressing increased optimism ahead of TWLO's Q4 2024 earnings results. Power highlighted the AI opportunity, adding, "Notably, 9,000 AI companies and 90% of Forbes 50 AI startups are building on TWLO as a customer engagement layer, and AI related companies spent $260 million on Twilio in the last 12 months." The analyst also raised TWLO's price target from $116 to $160, translating to a potential 40% upside.
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What The Market Is Telling Us
Twilio’s shares are not very volatile and have only had 8 moves greater than 5% over the last year. Moves this big are rare for Twilio and indicate this news significantly impacted the market’s perception of the business.
The biggest move we wrote about over the last year was 11 months ago when the stock dropped 15.5% on the news that the company reported weak fourth-quarter results and provided revenue guidance for the next quarter, which missed analysts' expectations. Twilio observed headwinds to revenue growth in Q4'2023 from customers in the crypto industry and expects similar headwinds in Q1'2024. Also, the company expects a sequential revenue decline in Q1'2024 partly driven by "elevated seasonal activity on our platform in Q4, which we do not expect to recur in Q1." In addition, its customer growth decelerated during the quarter.
On the other hand, revenue and EPS came in ahead of consensus estimates. Overall, this was a mediocre quarter for Twilio. Following the results, Northland Capital Markets downgraded the stock's rating from Outperform (Buy) to Market Perform (Hold).
Twilio is up 26.6% since the beginning of the year, and at $138.11 per share, has set a new 52-week high. Investors who bought $1,000 worth of Twilio’s shares 5 years ago would now be looking at an investment worth $1,138.
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