The News: Twilio (TWLO) reported financial results for its fourth quarter and full-year ending December 31, 2021. The industry darling in the customer engagement platform space delivered a strong earnings beat that saw the stock price rise by as much as 24% in late trading.
How did the company do:
- Fourth Quarter Revenue of $842.7 million, up 54% Year-Over-Year
- Fourth Quarter Revenue Dollar-Based Net Expansion Rate of 126%
- Full Year Revenue of $2.84 billion, up 61% Year-Over-Year
- Full Year Revenue Dollar-Based Net Expansion Rate of 131%
Analyst Take: Twilio is part of the cohort of fast-growing stocks that continues to post solid double-digit topline revenue growth numbers. Today, the numbers ensure the company remains a fully paid-up member of the high-growth club. 61% year-on-year growth is by any measure a stellar growth and bodes well for the underlying health of the business.
Twilio was founded in 2008 and positions itself as a provider of customer intelligence and communication at scale. If you have had a text message from a company over the years, there is a high likelihood Twilio powered that interaction. During the Investor Call after market close, CEO Jeff Lawson highlighted that three mega-trends are creating tailwinds for Twilio’s business:
- The continued trend of digital transformation,
- The direct-to-consumer business model entering nearly every industry,
- Changes in the data privacy landscape.
Across the Board Performance
The cloud-based communications software and services provider posted December-quarter earnings and a March-quarter outlook topping Street estimates. Despite the company still not posting a profit in its 13-year history, the growth numbers posted by the company are impressive. The company reported its net loss widened to $291.4 million, or $1.63 a share, in the fourth quarter, from a loss of $179.4 million, or $1.13, in the period a year earlier. The loss, excluding certain items, was 20 cents a share, beating analysts’ estimates. The continued losses were not a drag on the reaction to earnings, with Twilio shares up almost 20% in after-hours trading.
Twilio reported revenue of $842.7 million for the fourth quarter, up 54% from a year earlier, which was well above the company’s forecast range of $760 million to $770 million. On a non-GAAP basis, the company lost 20 cents a share in the quarter, narrower than the company’s forecast for a loss of 23 to 26 cents a share.
2021 the Last Year of Loses
During Twilio’s conference call with analysts Wednesday afternoon, Chief Operating Officer Khozema Shipchandler outlined how the company expects 2022 to be the last year it will report a non-GAAP operating loss. The company was bullish on its prospects and fully expects to deliver non-GAAP profits in 2023 and for the foreseeable future beyond that. While the company will remain focused on growth, the expectation is that its investments over the last few years will start to bear fruit and enable the company to recognize more efficiencies to drive leverage across the business.
I am encouraged to see Twilio’s optimistic outlook for the company in the near term and over the longer horizon. I believe that high-growth companies like Twilio have to eventually focus on delivering profits to retain credibility with markets and key stakeholders. This optimism is especially important given the macroeconomic headwinds facing many high-growth companies right now.
Customer Numbers Continue to Grow
One key metric I track with high-growth SaaS and Software companies is the ability for companies to attract and, perhaps more importantly, retain customers. It was encouraging to see that Twilio ended the quarter with 255,000 “active customer accounts,” representing a growth of 16% from the prior-year period. While I would like to see increased transparency relating to the breakdown of the spend of these customers and ideally deep insight into the ability of the company to cross-sell and up-sell, 16% growth and an absolute customer count of over 255,000 customers is substantial. Twilio’s strong net revenue expansion rate is indicative of a company that knows how to turn existing customers into larger ones.
On the Prowl for Acquisition Targets
With markets down overall since the beginning of the year and high growth tech stocks have fallen more than most, there has been much speculation that well-positioned large tech companies may be seeking opportunistic M&A activity. I noted comments from Khozema Shipchandler, Twilio’s CFO, that given current market conditions, “there may be some attractive opportunities, and we’ll be on the lookout.”
The company’s stock performance has struggled of late, with the stock down 23% before Wednesday’s close, against the overall position of the S&P 500 index, which is down about 4% at the time of publication. However, this has been the case for most growth companies since late November, when growth took a turn downward. The CDP and customer engagement space is becoming increasingly competitive, with Adobe, Microsoft, Oracle, and Salesforce all expanding their offerings in the segment. Smaller CDP providers have also gained momentum, including Treasure Data and India-based, Gupshup, further adding to the competitive landscape.
For Twilio to retain its competitive position, I expect the company to be aggressive with its M&A strategy while continuing to focus on strong growth and short-term plans to hit profitability.
Solid Forward-facing Guidance
When a high-growth software company can provide solid, detailed guidance for the year ahead, I always see this as a good sign. Not only did Twilio state that it now expects to be profitable on a non-GAAP basis for the calendar year 2023. The company is also projecting a robust March-quarter revenue of $855 million to $865 million, well above the old Street consensus at $803 million. This topline result will be paired with a non-GAAP loss of 22 to 26 cents a share. The company expects revenue growth of 45% to 47%, or 32% to 34%, excluding acquisitions. Analysts polled by Refinitiv looked for an adjusted loss of 5 cents per share on $802.9 million in revenue for the first quarter. During its after-hours Investor Call, the company expects organic growth of 30% or better for the next three years. This type of longer-term outlook leaves me bullish and optimistic about Twilio’s prospects in the medium term.
Overall Impressions of Twilio Q4 and 2021 Results
Twilio is well positioned in a growth market with strong tailwinds. The company has fierce competition and is certainly not alone in its focal markets and segments.
Twilio faces challenges that many similar growth-oriented tech companies face as they look to drive multi-channel engagement strategies with increasingly mobile-savvy customers. Providing rich engagements with high-touch multi-platform experiences will be vital to getting the best return from digital transformation initiatives. Twilio has the right product mix to assist its customers on their journey.
The company posted strong topline growth, a solid increase in active customer numbers, a strong net revenue expansion, and seems to be on the cusp of turning a profit. These encouraging data points speak to the C-Suite’s operational focus, which is often overlooked as growth is alluring.
Intending to improve every customer-brand interaction in a multi-channel world, I believe Twilio finds itself on an upward trajectory. The substantial revenue growth numbers, the hinted at plans for M&A activity, and the continued implementation of technologies such as AI and hyper-automation underscore the company’s ambitions to delight customers and enable the enterprise to differentiate customer experiences. All told, both the medium-term and the longer-term prospects look promising for Twilio.
Disclosure: Futurum Research is a research and advisory firm that engages or has engaged in research, analysis, and advisory services with many technology companies, including those mentioned in this article. The author does not hold any equity positions with any company mentioned in this article.