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Twilio Earnings: What Investors Need to Know

By Trevor Jennewine – Oct 18, 2021 at 12:49PM

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This cloud communications company is growing quickly.

Digital transformation has been a powerful growth driver for Twilio (TWLO 3.21%), a company that specializes in communications. Rather than building solutions from scratch, a costly and time-consuming process, many businesses use Twilio's software to incorporate features like text messaging and voice calling into their applications.

In this Backstage Pass video, which aired on Oct. 1, 2021, Motley Fool contributor Trevor Jennewine explains what investors need to know about Twilio's upcoming third-quarter earnings report, scheduled for Oct. 27.

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Trevor Jennewine: Twilio is a communications company. Its platform acts as an interface between the global telecom network and the internet. That just makes it easier for developers to put things like text messaging, voice calling, video, email into their own applications. This would be very difficult without Twilio, they would have to negotiate contracts with carriers around the world, maintain specialized hardware on site, and then build customize applications each time they wanted to do this. Twilio is a built-by-developers-for-developers solution for communications. Put a little context around the upcoming third quarter earnings. Last quarter, Twilio reached 240,000 customers, that was up 20%. Revenue climbed 67%. And one of the things that I think is impressive about this company is their expansion rate has been consistently high and it was 135% last quarter. Go ahead.

Jason Hall: I was just going to say that expansion rate, that's really important. Because that's like comps for companies like this. How much more are we getting from this base of existing customers?

Trevor Jennewine: Yep, exactly. For 135%, that just shows that if a customer spent $1 a year ago, that they spent $1.35 in the most recent year, so an uptick in spend there. I'm going to share my slides real quick. Hopefully you guys can see that.

Jason Hall: Looks great.

Trevor Jennewine: What management is expecting in the upcoming quarter is $670 million to $680 million in revenue -- that'd be up 52%. Still expecting a non-GAAP [adjusted] loss of $0.17 to $0.14. The things that I'm really going to be watching are customer growth -- that's important for this company as they continue to scale; I'd like to see that number tick up higher than the 20% they added last quarter. And then, like Jason mentioned, the dollar-based net expansion rate. It is like comps for this company and that's critical. I think that the company maintains that where they've been consistently in the past. So, 130% and above, that's what I'm looking for.

Free cash flow. I would like to see free cash flow moving toward positive territory, just to show that there's some sustainability to the business model. Then recently, last November, Twilio acquired Segment, which is a customer data platform. What that means is that Segment basically helps collect customer data from across all your different systems and then put it in one place so that you can get a unified view of your customers. As part of Twilio, this basically helps make communications more personalized, more engaging. They've been integrating that into their business over the last few quarters. I always like listening to management's commentary on how that merger is going, and how it's driving new use cases. That's what I plan to look for in the earnings call.

Trevor Jennewine owns shares of Twilio. The Motley Fool owns shares of and recommends Twilio. The Motley Fool has a disclosure policy.

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