Shares of cloud-based messaging company Twilio (TWLO 0.85%) crashed 32.2% in April, according to data provided by S&P Global Market Intelligence, a far worse performance than the S&P 500's 8.8% decline.
Twilio was punished for being a richly valued growth stock, tumbling alongside other pandemic highfliers, and an analyst price target cut in mid-April didn't help the cause. Twilio reported strong first-quarter results in early May, but that wasn't enough to undo April's damage.
Twilio started out focused on enabling text messaging for app developers. Through a simple API, a developer can send and receive texts using Twilio's platform. The company has since branched out. Twilio acquired SendGrid to add email capabilities to its platform, and it rolled out products related to user authentication, programmable video, and cloud contact center, to name a few.
Growth has been robust for the company. Revenue soared 42% in 2021 excluding the impact of acquisitions, and the company topped 250,000 active customers. The problem, though, is that Twilio is not even in the ballpark of turning a profit. The company reported a net loss of nearly $950 million last year on $2.84 billion of revenue. Over $1 billion was spent on sales and marketing in 2021 to drive that impressive growth.
Shares of Twilio peaked last summer at around $400 per share. It's been all downhill since then. The company has lost nearly 75% of its value as the market soured on unprofitable growth stocks. Twilio traded for more than 30 times annual sales in early 2021. That multiple has now fallen below 7.
Fueling some of the decline in April was a negative shift in analyst sentiment. Oppenheimer kept its buy rating on Twilio stock, but it slashed its price target from $550 to $380. Both of those targets look ridiculous given that the stock is now flirting with $100 per share, and other analysts were quick to lower their own targets following its earnings report in early May.
Twilio posted solid growth in the first quarter, but investors are no longer willing to dole out a premium valuation for the cloud software stock. Organic revenue rose 35% year over year, and existing customers expanded spending at a healthy rate, but the company reported a massive net loss under generally accepted accounting principles (GAAP) and called for organic revenue to grow by 29% at most in the second quarter.
Shares of Twilio are right back where they started before the pandemic began. Some may view this steep decline as a buying opportunity, but the market has turned hard against the Twilios of the world. Slowing growth and gigantic losses in a rising interest rate environment could mean even more pain ahead for its investors.