Has The Golden Age For Twilio Started?

Twilio is one of those companies that not many individuals know much about but which is used widely by over 300,000 businesses.

It essentially powers SMS communications so let’s say you’re a Dell or Shopify or Toyota and want to message your own audiences, you would sign up to Twilio to engage with them.

Twilio was seen as a high flyer a few years ago and rocketed all the way to $430 per share but has since stumbled and tumbled and downright fallen, until recently that is.

Since the company’s last earnings report, though, Twilio has been rallying again. Shares of TWLO are up 58% in the last three months alone, so is Twilio finally entering its golden age, and can investors still find value in the stock even after its rapid price run?

Key Points

• Twilio’s revenue growth is recovering, and losses have narrowed significantly, with non-GAAP earnings nearly doubling.
• Despite a 58% rally, a $2.7 billion buyback signals confidence.
• AI-driven products aim to fuel future growth, with margins projected to hit 21-22% by 2027. 

Twilio’s Recent Performance

One of the primary reasons Twilio’s share prices have fallen so far since the highs of a few years ago is the fact that its revenue growth rate has trailed off significantly. From 2018 through 2021, year-over-year revenue growth rates rarely came in below 50%. By 2023 and 2024, though, revenue growth collapsed to single-digit territory.

With that said, Q3 of last year offered investors a decent ray of hope. In that quarter, Twilio reported revenue growth of about 10% compared to the year-ago quarter. This was the highest growth rate the company had reported since Q2 of 2023 and more than double what it had delivered in either of the first two quarters of 2024.

Just as important as this renewed revenue growth is the fact that the company has gradually drawn closer to net profitability. In Q3, Twilio reported a GAAP loss of just $5 million. This pales in comparison to the $142 million the company lost a year earlier, showing just how much progress it has been able to make.

On a non-GAAP basis, Twilio reported earnings of $1.02 per share. A year earlier, that number was just $0.58 per share. With adjusted net income per share almost doubling in the last year and Twilio rapidly approaching GAAP profitability, the stock has understandably become much more attractive than it has been over the past couple of years.

Is Twilio Trading at a Fair Price?

Although Twilio’s numbers appear to be turning up, the stock still looks somewhat expensive at 5.8x sales and 2.7x book value.

While a company that was posting higher revenue growth could probably justify such a high multiple to sales, Twilio is likely to struggle to maintain its current price if it can’t increase or at the very least maintain its current growth rates.

The fact that Twilio’s price run over the last year may have left it overvalued is also reflected in the current range of analyst price targets for the stock. The median forecast price is $129.44, about 11% lower than the most recent price of $145.92.

While Twilio has certainly maintained strong momentum since the Q3 report’s favorable results were released, there’s a decent chance that the market could have driven the price up a little too far.

What Does Twilio’s Growth Runway Look Like?

Twilio will likely have to be able to show its investors that it can keep growth up in order to prevent its share prices from slumping off again.

One of Twilio’s biggest potential growth drivers is the integration of AI capabilities into its products. Twilio’s AI platform allows companies to build their own AI assistants, personalize customer experiences and create detailed customer profiles. With more and more businesses leaning into AI in customer communications, these services could see significant growth in the coming years.

By moving into AI communications and continuing to execute well in its existing business, Twilio expects to be able to deliver much stronger growth in the years to come. An updated forecast issued by management in January calls for a return to consistent double-digit revenue growth rates in the coming years. The company even updated Q4’s revenue growth guidance from 7-8% to about 11%. By 2027, Twilio even sees its adjusted operating margin rising to 21-22% from its current level of about 16%.

Is Twilio a Buy?

As a large company with a strong customer list that is using innovative new technologies to maximize value, there’s a lot to like about Twilio. Even more important is the fact that the improvements investors are expecting in Twilio’s business aren’t particularly speculative or far in the future. Q3’s results and the preliminary expectations for an even better Q4 show that Twilio is already putting itself back on a growth footing and setting itself up for a brighter future.

The fact that revenue growth is apt to rebound at the same time that the company is moving closer and closer to GAAP profitability also alleviates some of the concerns around the stock’s pricing. There’s little doubt that the sudden run TWLO shares have seen over the past few months has created conditions for volatility. In the long run, though, the price may very well be justified.

Between current growth, solid execution and a potentially good runway for future growth, Twilio has many of the characteristics of a good buy. While share prices may be a concern for some value investors, the company has a decent chance of growing fast enough to outrun its valuation. For investors with a focus on long-term growth from AI adoption and a willingness to ride out price volatility, Twilio may be worth looking at.

A final plus investors may want to consider with Twilio is the fact that the company has initiated a share buyback program. As of Q3, the company had bought back about $2.7 billion worth of its own shares.

Given Twilio’s overall market cap of about $22.4 billion, this buyback shows a significant commitment on management’s part to returning cash to shareholders through repurchasing.

While Twilio likely won’t be able to buy its own shares back at such attractive prices going forward, the fact that management is prioritizing buybacks could continue to benefit shareholders in the future.