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Twilio: Be Careful What You Ask For

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Drew Angerer

Twilio (NYSE:TWLO) initially soared pursuing mixed Q4'22 results. Cleary, nan marketplace appeared to for illustration nan displacement successful nan business to a profitable early aft a ample magnitude of investors questioned whether nan customer engagement company could ever beryllium profitable. My investment thesis remains Bullish connected nan stock, though nan institution has intelligibly reigned successful maturation opportunities going guardant perchance starring to nan delayed waste off.

Finviz Chart

Source: Finviz

New Day

The guidance squad announced respective shifts successful nan business highlighting a move distant from ultra maturation to 1 wherever profitable maturation is nan focus. Amazingly, Twilio announced a $1 cardinal stock buyback and trim 17% of nan workforce successful 1 swift move to usher successful nan caller shape of nan business wherever maturation astatine each costs is nary longer nan goal.

The institution had nary amended way to item this advancement than reporting a Q4'22 EPS of $0.22. Twilio smashed expert estimates by a whopping $0.30 and did a complete 180 from nan $0.27 nonaccomplishment successful nan anterior quarter.

News feed

Source: Seeking Alpha

As predicted successful nan past, Twilio only needed to rein successful spending to quickly go profitable, moreover successful a communications related business pinch gross margins of only 51%. Even pinch 21% integrated gross growth, nan institution only boosted full operating expenses by $19.5 million.

On a non-GAAP basis, guidance was capable to trim nan income and trading expenses connected some a comparative ground and arsenic a percent of revenues. Sales and trading expenses fell $14.9 cardinal starring those costs to driblet 700 ground points to only 21% of revenues.

Costs table

Source: Twilio Q4'22 net release

The important portion is that Twilio kept spending connected investigation and improvement keeping those expenses astatine 17% of sales. The institution has a acold amended way to profits pinch operating expenses down to only 47% of sales.

CEO Jeff Lawson made a profound connection successful nan Q4'22 prepared remarks by demanding nan communications products pull customers versus high-cost income reps:

Our products tin and should do much dense lifting to onboard customers and make them successful. I americium expanding my engagement successful merchandise activity – pinch a attraction connected building further self-service and merchandise capabilities to substance maturation much efficiently.

The astir awesome facet of nan alteration successful nan profit image is that Twilio didn't make nan 17% workforce reduction until mid-February. The financials will only spot a mini use during nan existent 4th and were already boosted by an 11% headcount simplification backmost successful September.

Total labor were 8,156 astatine nan extremity of 2022 and should autumn to beneath 7,000 pinch nan February Plan, down from a highest of astir 9,000 astatine nan extremity of past September. Management has now initiated a monolithic full workforce simplification of 26% successful conscionable a fewer months.

Shocking Buyback Plan

The equilibrium expanse starts looking acold different going guardant pinch a rate equilibrium of $4.2 billion. Twilio has a indebtedness position of astir $1.0 cardinal leaving a nett rate equilibrium of $3.2 billion, on pinch a business now producing affirmative rate flows.

For this reason, nan BoD announced a $1.0 cardinal stock buyback plan. The banal only has a marketplace headdress of $12.3 cardinal pinch an endeavor worth of conscionable $9.1 cardinal aft nan dip nan past mates of trading days. CEO Jeff Lawson moreover promises to acquisition $10 cardinal worthy of banal and investors tin jump connected nan banal now earlier nan trading model opens up for executives.

Twilio guided to ~$300 cardinal successful profits for 2023 successful a swift turnaround from a business expected to struggle producing a profit. Not only is nan institution capable to repurchase shares via a beardown equilibrium sheet, but besides nan business is now forecast to propulsion disconnected cash.

The customer engagement institution is only targeting an operating separator successful nan 7% scope for 2023. The displacement to a profitable business pinch less high-paid income reps apt comes astatine a cost. Analysts only forecast 12% to 15% maturation complete nan adjacent mates of years. Over time, nan self-serve communications business could provender maturation without nan dense spending, but this programme could return time.

Takeaway

The cardinal investor takeaway is that Twilio had been perfectly beaten to a pulp during nan 2022 waste off. The banal really isn't inexpensive connected a P/E multiple, but nan institution still moving to build nan business and boost profits.

Investors should bargain nan banal for nan inexpensive aggregate of income astatine 2x EV/S while nan institution is engaged repurchasing shares. The slower maturation rates won't make each shareholders happy, but Twilio is connected a acold amended financial footing now.

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Editor: Naga



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