Cloud communications provider Twilio (TWLO 4.84%) roared impressively higher in the last three months of 2024. It started 2025 on a high as well, but shares of the company have taken a big beating after it hit its 52-week high on Jan. 31.
Twilio stock is down 40% from the 52-week high that it achieved earlier this year. The overall uncertainty in the stock market due to the Trump administration's tariff policies, along with a mixed quarterly report in February, have combined to send shares of this company packing in recent months.
NYSE: TWLO
Key Data Points
However, Twilio's sharp pullback looks like an opportunity for investors to buy a company that's benefiting from the growing adoption of artificial intelligence (AI) in the cloud communications space, especially considering that its fortunes could turn around when it releases its quarterly results on May 1.
Let's look at the reasons why Twilio stock could soon regain its mojo.
Growing adoption of Twilio's AI tools could help it deliver better-than-expected results
Twilio announced solid results for the fourth quarter of 2024 in February this year. Its revenue was up by 11% from the year-ago period, while non-GAAP earnings increased by 16% year over year to $1.00 per share. Twilio beat Wall Street's revenue estimate, but its earnings were a bit lighter than the $1.03 per share expectation.
Investors were quick to press the panic button, and that wasn't surprising, as the guidance was lighter than expected. Twilio is expecting its top line to increase by 8% to 9% year over year in the first quarter of fiscal 2025, which would be a slight deceleration over its Q4 performance. It forecasts a 13% year-over-year jump in earnings to $0.90 per share at the midpoint of its guidance range, which is well below the consensus estimate of $0.98 per share.
However, there is a possibility that Twilio's revenue and earnings could land ahead of expectations. That's because the demand for the company's AI-focused communication tools is helping it win a bigger share of customers' wallets, encouraging them to spend more money on its offerings. This is evident from an uptick in Twilio's cross-selling statistics.
In its investor day presentation in January this year, Twilio management pointed out that the number of active customers buying add-on products from the company jumped by 16% year over year in the third quarter last year. That was an improvement of five percentage points seen in the previous quarter. Importantly, the opportunity for cross-selling remains solid going forward as well, considering that Twilio had over 325,000 active customer accounts at the end of 2024.
Of these, 9,000 customers building AI-focused cloud communications tools were using Twilio's platform last year. So there is still a massive chunk of Twilio's existing customer base out there that's yet to adopt its AI-based solutions -- such as AI assistants, AI-powered customer engagement tools, and predictive analytics tools -- to help its clients improve sales conversion rates.
Twilio is anticipating the demand for AI tools in cloud communications and in the customer data platform (CDP) markets that it serves to increase its addressable market sizably in the future. It estimates that the company's existing markets will give it an addressable revenue opportunity worth $119 billion by 2028. Conversational AI is expected to add another $39 billion to that opportunity over the next three years.
Twilio ended 2024 with just under $4.5 billion in revenue. So, AI could eventually help it deliver substantial growth in its top and bottom lines by helping Twilio attract more customers, and also by enabling it to cross-sell its AI offerings to existing customers. As such, don't be surprised to see Twilio's first-quarter 2025 results, which are scheduled for release after the market closes on May 1, beat expectations.
The additional revenue opportunity that AI is creating for Twilio bodes well for its guidance. Moreover, investors shouldn't forget that the company is anticipating a nice acceleration in its margins over the next three years, which could translate into solid earnings growth.
Twilio's valuation and earnings growth potential point toward healthy gains
Twilio's non-GAAP operating margin in 2024 stood at 16%. The company is expecting this figure to increase to a range of 21% to 22% in 2027. This seems achievable considering the points discussed above, which is why investors can expect solid bottom-line growth from the company going forward.
As the chart below tells us, Twilio's earnings are expected to increase by 17% in 2026 and almost 22% in 2027.
TWLO EPS Estimates for Current Fiscal Year data by YCharts.
Assuming Twilio's earnings increase to $6.22 per share in 2027 and it trades in line with the tech-laden Nasdaq-100 index's forward earnings multiple of 24 at that time (using the index as a proxy for tech stocks), the stock could hit $149. That points toward potential gains of 69% in the next three years.
Given that Twilio is now trading at 20 times forward earnings, the time seems right for investors to buy it. A potential turnaround in its fortunes next month could set the stage for a bull run in this cloud computing stock.
