Can high growth spark Twilio share price after Q4 earnings?

The Twilio [TWLO] share price has slumped since the start of 2022, but healthy revenue growth and recent acquisitions could provide a much-needed boost when the company announces fourth-quarter and full-year results on 9 February.

According to analysts polled by Zacks Equity Research, the cloud communications company is expected to post revenues of $768.9m, an increase of 40.3% from the year-ago quarter.

Twilio is expected to turn back to red with a loss of $0.21 per share for the quarter ended 31 December, from a non-GAAP accounting standard profit of $0.04 per share in Q4 2020. Zacks points out that there may be hope yet as the company’s earnings have beat its consensus estimate in the past four quarters.

The company’s revenues have been boosted by ongoing digital transformation projects, but Q4 profits are likely to be dragged by increased investment on acquisitions, research and development and its Flex cloud software.

M&A activity

In July 2021 the company bought toll-free messaging service Zipwhip for $838.4m, and the December quarter will be the first for the acquisition to fully reflect in Twilio’s financials.

In December Twilio also launched a venture fund worth $50m to invest in startups. It has already made some in the past year, including site search application programming interface Algolia, video platform for developers MUX and customer operations platform Calixa.

Analysts at Zacks believe the company is getting more contracts from existing clients as well as new ones, but “intensifying competition in the cloud telecommunications market is inducing pricing pressure for Twilio, which is an overhang on its profitability”.

Twilio stock trends downwards

After making considerable gains in 2020 as companies rushed to adapt to working from home, Twilio has suffered the same fate as many other ‘stay at home stocks’ that have struggled to maintain momentum as economies reopen.

The Twilio stock price dropped 51% in the past 12 months to close at $195.78 on 8 February – a long way down from the 52-week high of $457.30 on 18 February last year.

More recently, it has been impacted by the broader turn away from growth stocks towards more resilient value stocks amid rising inflation and anticipated interest rate hikes.

The Twilio ticker has tumbled 25.7% since the start of the year, following in the footsteps of other innovation-led tech stocks like Apple [AAPL] and Amazon [AMZN] that have struggled since the start of 2022. 

“Intensifying competition in the cloud telecommunications market is inducing pricing pressure for Twilio, which is an overhang on its profitability” - Zacks Research

Q3 results were mixed

Twilio reported mixed results in the third quarter. Revenue totalled $740.2m, up 65% year-over-year and exceeding the company’s outlook of $680m. This included $52.3m from Segment and $23.6m from Zipwhip. It posted adjusted earnings per share of $0.01, beating the forecast loss of $0.14 per share.

However, on an unadjusted basis the company made a net loss of $224m in Q3 2021, almost double the $117m loss in the same period of 2020.

CEO and cofounder Jeff Lawson (pictured above) remained optimistic, highlighting the growth potential of the company’s newest pillar, Twilio Engage, which was announced in the Q3 report. According to Lawson, it will “allow companies of all sizes and in any industry to build and optimise hyper-personalised marketing campaigns on every channel for customer acquisition, conversion and retention”. Personalisation was a key theme for its customers in Twilio’s ‘2021 Growth Report’ published in November.

The Twilio share price plunged nearly 20% after the announcement, though it recovered much of that loss shortly after.

Analysts are buying the dip

Though there are signs it may be overvalued, analysts see the dip in Twilio stocks as a buying opportunity. All 24 analysts polled by MarketBeat gave the stock a ‘buy’ rating, with a consensus price target of $407, a 107.9% upside on the current price. 

Twilio stocks received a boost at the end of January when the Bank of America announced it would be resuming coverage of Twilio stock with a ‘buy’ rating and $250 price target, according to The Fly.

BofA analyst Michael Funk said the company is well placed to see sustainable growth of 30% or more over the next five years, putting it on track for $6.5bn revenue by 2024. Funk cited the “software selloff landslide” as the reason for the recent underperformance.

Cathie Wood’s ARK Innovation ETF [ARKK] has also been buying Twilio stocks again, picking up 63,000 shares on 1 February. Twilio is among ARKK’s top 10 holdings, with a 4.3% weighting in the fund as of 8 February.

With the outlook appearing bright, investors will be hoping Twilio’s recent acquisitions pay dividends in the longer term.