The time has come for Twilio Inc. (TWLO 2.64%) to justify this year's torrid gains. The leading provider of in-app communications solutions reports financial results after Tuesday's market close, and there's a lot riding on the stock, which has more than tripled in 2018.
The irony behind this year's 215% pop is that it was trading even higher this summer. Shares of Twilio are actually moving lower for the third consecutive month. This week's third-quarter report can either help reverse the recent weakness or confirm that the stock's big surge through the first half of 2018 was overdone. Let's go over a few of the things that Twilio will need to get right.
1. Growth needs to keep accelerating
Momentum has been picking up at Twilio this year. Revenue has accelerated since rising 41% in the fourth quarter of last year, soaring 48% in the first quarter before its 54% spike last time out. Twilio's guidance this summer was calling for a 49% to 51% increase in total revenue this year, which was a slight year-over-year deceleration but more than enough to make it the tech darling's second-largest quarterly growth rate since the end of 2016.
Twilio has been conservative in the past. Finding a way to top the second quarter's 54% top-line pop would be a great way to get the stock moving higher again. This isn't just wishful thinking. Twilio was initially eyeing just 35% to 37% in revenue growth for that blowout second quarter.
2. Twilio needs to Flex its muscles
Some of the recent bullish analyst updates are playing up the prospects for Flex, Twilio's first fully programmable cloud contact-center solution. Twilio rolled out Flex to select developers in March, and it announced general availability at last month's Signal developer conference.
General availability wasn't announced until after the third quarter came to a close. In other words, that move won't be reflected in Tuesday afternoon's quarterly performance. However, Twilio will likely talk up how interest has picked up since Signal. It also won't hurt if it offers some metrics on how it's milking more out of Flex's springtime early adopters.
3. Let's prove that Twilio didn't throw $2 billion away
The recent weakness in Twilio shares can't be solely explained by its deal to buy transactional and marketing email manager SendGrid, but it's clear that didn't help. Twilio stock would go on to close lower for four consecutive trading days after the mid-October announcement of the roughly $2 billion stock deal, and it continues to trade below its preannouncement levels.
Some may argue that Twilio is overpaying for SendGrid, a company growing slower than Twilio but packing beefier gross profit margins. I disagree. Twilio will be able to enhance both platforms by taking what's best from each solution, and at the very least, it will have larger customer counts to market all of its offerings to once the dust settles.