What happened
Twilio (TWLO -1.59%) shareholders had a rough week. The communication services stock fell 14% through Thursday trading, according to data provided by S&P Global Market Intelligence, compared to a 0.8% uptick in the wider market. That performance continued a weak short-term trend for the stock, which is down 75% so far in 2022 versus a 23% decrease in the S&P 500.
The slump came as investors worried about a potential recession on the way, spurred on by inflation and rising interest rates. Wall Street is also concerned that Twilio will have some downbeat comments about the current selling environment in its upcoming earnings report.
So what
Twilio is set to announce Q3 earnings on Nov. 3. The cloud services company will also hold its annual investor day, during which the management team will discuss those quarterly results along with any change to the company's outlook for 2022 and beyond.
Several companies have described mounting demand pressure in the software industry as some IT businesses pull back on spending. Okta lowered its outlook, for example, and Zoom called out new headwinds on its communications platform. Investors are mainly worried that Twilio will sound a similar tone in its upcoming report.
It doesn't help that the company is currently generating net losses, exposing it to potentially tough cost cuts ahead if sales trends decelerate. This week's inflation reading pointed to continued aggressive interest rate increases ahead by the Federal Reserve, which carries the risk of depressing economic growth.
Now what
Twilio's last earnings report contained no signs of a demand pullback. In fact, CEO Jeff Lawson said in early August that executives are "confident in our growth trajectory."
The stock might quickly recover some of its lost ground if that confidence rings through in the early November update. For now, investors are taking a wait-and-see approach to the software-as-a-service stock.
