Is Twilio a Buy as Demand for Cloud Communications Grows?

Twilio Inc. (TWLO), a leading provider of customer engagement platform solutions, reported solid results for its second quarter that ended June 30, 2024. The company’s total revenue came in at $1.08 billion, surpassing analysts’ estimate of $1.06 billion. It posted non-GAAP net income per share of $0.87, compared to the consensus estimate of $0.70.

Moreover, Twilio recorded more than 316,000 Active Customer Accounts as of June 30, 2024, compared to over 304,000 Active Customer Accounts as of June 30, 2023. Its Dollar-Based Net Expansion Rate of 102% for the second quarter of 2024 versus Dollar-Based Net Expansion Rate of 103% for the second quarter of 2023.

Khozema Shipchandler, CEO of Twilio, said, “By combining our leading communications capabilities, our rich and contextual data, and the power of AI, we are uniquely positioned to unlock smarter and more personalized interactions for brands that drive more revenue for them at a lower cost.”

Further, TWLO raised its non-GAAP income from operations range for the fiscal year 2024 to $650-$675 million, up from $585-$635 million guided previously. Twilio also anticipates its full-year free cash flow to align with its fiscal 2024 non-GAAP income from operations.

In June, Twilio was recognized as a Leader in the 2024 IDC MarketScape Worldwide Contact Center as a Service (CCaaS) for its composable contact center solution, Twilio Flex. This recognition highlights TWLO’s commitment to innovate and enhance synergies across its platform.

Twilio introduced new offerings for Flex, Unified Profiles and Agent Copilot, seamlessly integrating Segment’s customer data capabilities into Flex. With Unified Profiles, Flex agents can access real-time data and deeper insights into their customers’ preferences. Agent Copilot leverages this data alongside AI to empower employees with automation and boost productivity.

Meanwhile, the company was named a Leader in 2024 Magic Quadrant™ for Communications Platform as a Service (CPaaS) for its CPaaS platform for the second consecutive year.

Shares of TWLO have gained 4.5% over the past month to close the last trading session at $60.70.

Let's look at factors that could influence TWLO’s performance in the upcoming months.

Robust Financials

For the second quarter of 2024, TWLO’s total revenue increased 4.3% year-over-year to $1.08 billion. Its communications revenue rose 4% from the year-ago value to $1.01 billion. Its gross profit was $555.85 million, up 9.9% year-over-year. Its non-GAAP income from operations grew 46% from the prior year’s quarter to $175.30 million.

Additionally, the company’s non-GAAP net income per share attributable to common stockholders was $0.87, an increase of 61.1% from the prior year’s period. Its free cash flow was $197.60 million, compared to $71.90 million for the second quarter of 2023.

Favorable Analyst Estimates

Analysts expect TWLO’s revenue for the second quarter (ending September 2024) to grow 5.7% year-over-year to $1.09 billion. The consensus EPS estimate of $0.86 for the ongoing quarter indicates an improvement of 47.8% year-over-year. Further, the company has topped consensus revenue and EPS estimates in each of the trailing four quarters, which is impressive.

For the fiscal year ending December 2024, Street expects Twilio’s revenue and EPS to increase 5.2% and 38.4% from the previous year to $4.37 billion and $3.39, respectively. The company’s revenue and EPS for the fiscal year 2025 are expected to grow 7.2% and 13.5% year-over-year to $4.69 billion and $3.85, respectively.

Low Valuation

In terms of forward non-GAAP P/E, TWLO is currently trading at 17.90x is 23.5% lower than the industry average of 23.39x. Likewise, the stock’s forward EV/Sales of 1.78x is 39.6% lower than the industry average of 2.79x. Moreover, its forward EV/EBITDA of 9.66x is 32.9% lower than the industry average of 14.38x.

Also, the stock’s forward Price/Sales of 2.23x is 22.2% lower than the industry average of 2.87x. Its forward Price/Book multiple of 1.24 is 70.3% lower than the industry average of 4.17x.

POWR Ratings Reflect Promise

TWLO’s sound fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings are calculated by taking into account 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. TWLO has an A grade for Growth and a B for Sentiment, in sync with outstanding financial performance in the last reported quarter and optimistic analyst estimates.

In addition, the stock has a B grade for Valuation, consistent with lower-than-industry valuation.

Within the A-rated Software-SAAS industry, TWLO is ranked #8 out of 18 stocks.

Beyond what I have stated above, we have also given TWLO grades for Momentum, Quality, and Stability. Get all TWLO ratings here.

Bottom Line

TWLO’s strong financial performance, combined with its innovative offerings and strategic recognition, positions the company well for continued growth. The integration of AI and other advanced technologies into its Flex platform underscores Twilio’s commitment to enhancing customer engagement solutions, making it a compelling player in the cloud communications space.

Given robust financials, favorable analyst estimates, and attractive valuation, TWLO could be an ideal buy for substantial returns.

How Does Twilio Inc. (TWLO) Stack Up Against Its Peers?

While TWLO has an overall POWR Rating of B, investors could also check out these other stocks within the Software-SAAS industry with an A (Strong Buy) or B (Buy) rating: DocuSign Inc. (DOCU), Vimeo Inc. (VMEO), and MiX Telematics Ltd. (MIXT).

To explore more A or B-rated software stocks, click here.

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TWLO shares were trading at $60.84 per share on Friday morning, up $0.14 (+0.23%). Year-to-date, TWLO has declined -19.81%, versus a 16.99% rise in the benchmark S&P 500 index during the same period.

Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.

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