Shares of Twilio (TWLO +3.12%) fell 18.9% on Friday, as of 3:47 p.m. ET.
Twilio reported earnings last night, and while results beat analyst expectations on all counts, it seems the company's guidance disappointed -- enough to cause today's severe sell-off.
NYSE: TWLO
Key Data Points
Twilio has a strong quarter but weaker outlook
In the second quarter, Twilio grew revenue 13% to $1.23 billion, with adjusted (non-GAAP) earnings per share of $1.19. Both figures handily beat analyst expectations. Underlying metrics were also strong, with the total customer count up 10% year over year and the dollar-based net expansion rate -- how much money existing customers grew their spending relative to last year, net of churn -- came in at 108%, an acceleration over the 102% rate in the year-ago quarter.
However, when it came to third-quarter guidance, Twilio may have left some wanting. Management projected revenue growth of 10% to 11%, a two-point deceleration, as well as compression in operating margin as it forecast $210 million in adjusted operating income. That would actually mark a sequential decrease from Q2's $221 million.
Image source: Getty Images.
Twilio is cheap by software standards, but maybe for a reason
Twilio may look quite cheap relative to other software-as-a-service stocks, as it trades at just 22 times this year's adjusted earnings estimates. However, Twilio also pays a lot of stock-based compensation to employees, which totaled $149 million in the quarter. Adding those costs back, Twilio was barely profitable.
Twilio does have an excellent balance sheet, with over $2.5 billion in cash and no debt, and it is using that cash to offset the share dilution. However, the lack of generally accepted accounting principles (GAAP) profitability may hamper the stock's ability to get back close to its 2021 highs anytime soon.
