Communications software specialist Twilio (NYSE:TWLO) reported third-quarter results the evening of Nov. 8. The company's user base and revenues continued to skyrocket while the bottom line sank deeper into the red ink. And that's all by design.

Let's have a closer look at Twilio's report.

Twilio's third-quarter results: The raw numbers

Metric

Q3 2017

Q3 2016

Year-Over-Year Change

Revenue

$100.5 million

$71.5 million

41%

Net loss

$23.5 million

$11.3 million

(108%)

GAAP loss per share (diluted)

$0.25

$0.13

(92%)

Active customer accounts

46.5 million

34.5 million

35%

Data source: Twilio.

Management's guidance for the third quarter called for an adjusted net loss of roughly $0.08 per share on sales near $92 million. The adjusted loss was right in line with that forecast, but Twilio crushed its own sales expectations.

What happened with Twilio this quarter?

  • Twilio's bank vaults held $284 million of cash equivalents at the end of the third quarter, down from $289 million in the second quarter and $306 million by the end of fiscal year 2016.
  • A new software development tool called Twilio Studio was introduced in the third quarter, giving clients a simple drag-and-drop tool to simplify and accelerate their production efforts. Twilio already offers separate production tools for popular platforms such as Android and iOS, but the new Studio streamlines the development process in ways that had not been available before.

Based on these results and the current business environment, halfway through the next reporting period, Twilio offered the following fourth-quarter guidance targets.

  • Total revenue should land near $103.5 million, up from $82 million in the year-ago period.
  • Adjusted net losses per share are seen stopping at roughly $0.06 per share, in line with adjusted losses in the fourth quarter of 2016.
Twilio's logo, red on white.

Image source: Twilio.

What management had to say

Twilio CEO Jeff Lawson waxed downright poetic about the new Twilio Studio tool:

With Twilio Studio, the visual builder for Twilio, we can accelerate our customers' roadmaps and help an even larger set of users build on our platform. We are excited by the size, scale, and diversity of what new and existing customers are creating with Twilio.

The Studio program is only available to a select number of early adopters, preparing and quality-testing for a wider rollout in 2018.

Looking ahead

The company is putting the pedal to the metal to maintain maximum top-line and user growth -- profits will just have to wait. Sales and marketing expenses increased 65% year over year, and the R&D budget grew 50% larger. Personally, I'm all for fast-growing technology companies funneling large budget slices into their research-and-development effort, since that's the very lifeblood of such businesses. Twilio's large marketing expenses are a natural corollary to that rule.

In management's own words, the company is optimizing its operations to maximize market reach and scale rather than protecting profit margin. "Gross margin may fluctuate in the near term as we pursue this deliberate strategy to further extend our market leadership," said CFO Lee Kirkpatrick three months ago.

Anders Bylund has no position in any of the stocks mentioned. The Motley Fool recommends Twilio. The Motley Fool has a disclosure policy.