Twilio Stock Up 19% Today – Time to Buy TWLO Stock?
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The price of Twilio stock is up 19% this morning in pre-market stock trading action following the release of the firm’s financial results covering the fourth quarter of the 2021 fiscal year as revenues shattered analysts’ estimates period.
For the three months ended on 31 December, the software-as-a-service (SaaS) company reported total revenues of $842.7 million resulting in a 54% year-on-year jump. The consensus estimate from analysts for this period stood at $769.4 million.
Active customer accounts – a key operating metric for Twilio – rose to 256,000 representing a 16% increase compared to the same period a year ago while the firm’s dollar-based net expansion rate reached 126% compared to 139% reported during the fourth quarter of 2020.
GAAP losses from operations landed at $283.6 million resulting in a negative operating margin of 33.7%. This negative margin was only 10 basis points lower than the one reported a year ago.
Meanwhile, non-GAAP operating losses stood at $27.2 million resulting in a negative 3% margin upon excluding non-cash items such as stock-based compensation and the amortization of intangibles. In Q4 last year, the company reported a positive non-GAAP operating margin of 2%.
Finally, Twilio reported adjusted net losses per share of $0.20 compared to a positive figure of $0.04 per share it generated in Q4 2021. However, analysts were expecting a higher negative EPS of $0.22 per share.
For the next quarter, Twilio’s management expects to deliver revenues ranging between $855 and $865 million along with adjusted losses per share ranging between $0.26 and $0.22. The consensus estimate from Wall Street for the period was $802.9 million and minus $0.05 per share respectively.
Market participants appear to be reacting positively to the fact that the company’s growth has not decelerated despite a fading pandemic tailwind.
What could be expected from this tech stock following the release of this quarterly report? In this article, I’ll be assessing the price action and fundamentals of Twilio stock to outline plausible scenarios for the future.
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Twilio Stock – Technical Analysis
The price of Twilio stock has declined more than 23% since the year started as changes in the macro environment have weighed on the valuation of risky asset classes like equities and more so on companies with weak fundamentals as is the case of TWLO.
As a result of this drop, the price dropped below a crucial area of support at $220 and tried to reclaim it unsuccessfully only a few days ago. However, this morning’s pre-market uptick is pushing the price above that mark again and is opening up the possibility of a full-blown trend reversal if the market’s sentiment toward the stock changes following today’s earnings report.
Momentum indicators appear to be indicating that the latest downtrend has found a bottom already as the Relative Strength Index (RSI) and the MACD are both on an uptrend despite the price moving lower. The trend reversal could be confirmed if the RSI moves above 50 and the price holds above the $220 level.
Twilio Stock – Fundamental Analysis
Twilio’s sales last year went up 61% compared to the figure reported in 2020. This annual growth rate was higher than the one reported the year before back when the pandemic was supposedly lifting the firm’s performance and may indicate that customer acquisition and retention rates remain strong despite this fading tailwind.
That said, GAAP losses from operations landed at $915.6 million resulting in negative operating margins of 32.2%. Net losses were also quite high at $949.9 million for a negative net margin of 38.3% or a 1,040 basis point deterioration in the firm’s bottom-line profitability.
By the end of the fourth quarter, Twilio had long-term debt of $985.9 million on total assets $13 billion including $6.41 billion in goodwill and intangibles and $5.36 billion in cash and equivalents and short-term marketable securities.
Meanwhile, the firm burned around $550 million in cash last year compared to $301 million it burned back in 2020.
If today’s pre-market uptick spills over to the live session as is, the firm will be valued at around $42 billion or 11.5 times its forecasted sales for next year.
In the current macro environment, this valuation seems rather high for a company whose business model remains unfeasible from a financial standpoint. Even though the balance sheet is robust, the fact that Twilio keeps burning hundreds of millions in cash every year while its negative operating margins are surging creates room for a multiple contraction if top-line growth decelerates in the future.
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