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Why Twilio Stock Fell After Earnings This Week

By John Ballard – Oct 29, 2021 at 2:09PM

Key Points

  • Revenue, customer growth, and the dollar-based expansion rate all looked strong for the third quarter.
  • Management is excited about the recently introduced Twilio Engage platform.
  • Growth is expected to decelerate to 39% to 40% in the fourth quarter.

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Management sees slowing growth next quarter.

What happened

Week to date, shares of Twilio (TWLO -3.99%) were down 18.1% as of 12:58 p.m. EDT on Friday, according to data provided by S&P Global Market Intelligence. The company reported strong third-quarter earnings on Thursday but a soft outlook for the fourth quarter weighed on the stock price.

The shares are now down 13.4% year to date, compared to a 19.9% return for the Nasdaq Composite index.

TWLO Chart

TWLO data by YCharts

So what

Overall, results for the latest quarter were strong. Revenue growth remained stable with previous quarters, up 65% year over year. The company ended the quarter with over 250,000 active customer accounts, compared to 208,000 in the same quarter a year ago. Customers also continue to spend more after signing up for Twilio's leading communication products, including marketing tools for messaging, video, email, and other solutions, with the dollar-based net expansion rate remaining at 131%. 

One thing that stood out was the introduction of Twilio Engage on Oct. 20, which is another step toward investing further in its customer engagement platform strategy. Twilio Engage can help companies build personalized marketing campaigns and gain a greater share of wallet with customers. The rollout of Twilio Engage follows the year-ago Segment acquisition for $3.2 billion, which combined Segment's data insights with Twilio's cloud communications platform.

A chart of falling stock price.

Image source: Getty Images.

Now what

For now, market participants are more concerned about decelerating growth expected in the fourth quarter. Management forecasts next quarter's revenue to be up 39% to 40% year over year, which is below the 60%-plus level investors have gotten used to lately. 

With many stocks trading at high valuations, market participants are on pins and needles right now. Any sign of weakness is likely going to cause a highly valued growth stock to get slammed in this market environment, and that seems to be what happened with Twilio.

Investors will have to adjust expectations, so the shares could remain volatile, but management expects to maintain at least 30%-plus growth over the next three years. 

John Ballard 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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