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Twilio Stock Has a Lot to Prove This Week

By Rick Munarriz – Apr 29, 2019 at 5:05PM

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The cloud-based communications specialist reports first-quarter results on Tuesday afternoon. Expectations are high, but reality could exceed them.

The market loves Twilio (TWLO -4.51%), and the stock is kicking off the new trading week by hitting all-time highs on Monday. A beefy earnings report on Tuesday afternoon will dictate if the dot-com darling keeps hitting fresh high-water marks later in the week.

The stakes are high for the leading provider of in-app communication solutions. The stock nearly quadrupled in 2018, and it's up better than 50% so far this young year. Put another way, Twilio stock has been nearly a six-bagger since the beginning of last year. There's a lot of air under the stock, a situation that makes the already topsy-turvy earnings season even more volatile. 

Twilio at the 2015 Signal developers conference.

Image source: Twilio.

There's an app for that

Twilio improves apps by making them more efficient. When your Lyft driver lets you know that she's arrived or your Airbnb host confirms your appointment, you're seeing Twilio in action. Twilio makes communication more efficient, providing a more satisfying experience for the user and a likely more lucrative one for the developer.

Popularity is booming. Revenue surged 77% in Twilio's latest quarter, accelerating from the 63% growth pace it scored for all of 2018. Management sees total revenue soaring 72% to 74% for the quarter that it will be discussing shortly after Tuesday's market close. Its mid-February guidance was also calling to barely break even on an adjusted basis, but investors are not bidding up Twilio stock based on its current bottom line.

Analysts are falling in line with Twilio's guidance even though it's now more than two months old. They see Twilio's top line moving 73% higher with an adjusted profit of $0.01 a share. Twilio has historically landed ahead of Wall Street's profit targets, though it did merely meet expectations last time out.

There are a couple of metrics that investors will want to keep an eye on. Twilio began the year with 64,286 active customers on its platform, a 31% increase over the previous year. Revenue has always grown faster than its customer count since developers tend to lean more and more on Twilio's features as their apps grow in popularity, and that leads us to another metric worth watching: net expansion rate. Twilio's dollar-based net expansion rate clocked in at 147% in its previous quarter, its strongest showing in years. Any figure north of 100% indicates that its retained customers are generating more revenue for Twilio. 

Revenue growth may slow in 2019 after four straight quarters of acceleration. If that doesn't happen in the first quarter, it probably will at some point, as Twilio's outlook calls for 64% to 66% top-line growth for the entire year. A strong quarter won't amount to much if management doesn't boost its full-year guidance, just as encouraging guidance could compensate for a mixed financial report. One of the market's hottest stocks is on deck, and it better come out swinging.

Rick Munarriz has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Twilio. The Motley Fool has a disclosure policy.

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