Image source: Twilio.

If momentum is any kind of indicator, Twilio (NYSE:TWLO) shareholders may not want to be looking forward to Thursday's quarterly report out of the cloud communications specialist. Twilio stock plunged 13.7% last week, continuing to slide after completing a secondary offering the week before. An analyst also initiated coverage of Twilio with an uninspiring Neutral rating.

Twilio has been a rollercoaster ride since going public at $15 just five months ago. The fast-growing tech darling behind a communications platform that provides embedded messaging, voice, and video capabilities within a company's software applications was a hot IPO. It nearly doubled in its first day of trading, and by late September the stock had more than quadrupled to peak at $70.96. Twilio stock has gone on to shed more than half of its value.

The decision to sell 7 million shares in a secondary offering two weeks ago didn't go down well with investors. The shares were priced at $40 on Oct. 20, despite the stock itself closing at $44.14 that day. Three trading days later the stock buckled below $40 and it hasn't come back up for air ever since.

Primary concerns about secondary offerings

Twilio's second stock placement isn't as dilutive as it may seem. More than 6.3 million of those shares came from selling stockholders. Just 641,222 were freshly issued shares with Twilio on the receiving end of those proceeds. Underwriters have 30 days to grab another 1.05 million shares from Twilio, but with the stock in the mid-$30s that's not likely to happen unless Thursday's financial update is a blowout report. 

The fact that the selling stockholders didn't have a problem dumping a stock that had been trading north of $70 just a few weeks earlier at $40 has to send an unsettling message to the market. It's a message that's validated now with the stock well below their exit price from two weeks ago. However, this comes at a time when Twilio's popularity among enterprises continues to surge.  

The appeal of running real-time communications within software applications is catching on, and Twilio's Rolodex of clients is expanding at a healthy clip. All of the cool apps -- from Uber to Airbnb to WhatsApp Messenger -- lean on Twilio. That will likely continue until someone comes out with a better mousetrap.

Revenue has skyrocketed, going from $49.9 million in 2013 to $88.8 million in 2014 and $166.9 million last year. It was already at $123.9 million through just the first six months of 2016, and we should see more top-line growth on display after Thursday's market close. Twilio sees $70.25 million to $71.25 million in revenue for the quarter, up sharply from the $44.3 million it rang up a year earlier.

The news isn't as kind at the other end of the income statement. Twilio's been posting losses for years, and the market's bracing for another quarterly deficit this time around. At this phase of rapid client accumulation the market's willing to overlook the lack of near-term profitability. This doesn't mean that Mr. Market's giving Twilio a pass. The stock has shed half of its value since late September. 

Twilio still has a lot to prove on Thursday. One good sign in the sea of negative momentum is that Oppenheimer just initiated coverage of the stock with an Outperform rating and a $50 price target. This helps counter MUFG analyst Stephen Bersey initiating coverage on Twilio last Thursday with a Neutral call and a $39 price target. There's a lot riding on Thursday afternoon's report, and it's a safe bet that Twilio will be a volatile stock in Friday's trading. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.