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On Sun, 21 Jul, 12:00 AM UTC
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Can Twilio Come Back in the Second Half of 2024? | The Motley Fool
Like many growth tech stocks, Twilio (TWLO 1.74%) benefited from a fantastic run in 2021 only to hit a wall in the 2022 bear market. Unfortunately, the communications platform-as-a-service (CPaaS) stock has never recovered, and it fell in the first half of 2024. Still, CPaaS plays a critical role in the operations of tech-dependent companies such as Uber and Airbnb. Also, the fact that Twilio stock experienced considerable growth at one time indicates that it could happen again under the right conditions. Hence, it makes sense to look at whether the second half of the year may finally be Twilio's time. Twilio benefited from initial success because it was a first mover in the CPaaS field. Its tools support text, voice, video, and email through application programming interfaces (APIs). More than 300,000 companies use its technology in some form, including many of tech's top growth companies. Moreover, Grand View Research estimated the compound annual growth rate of the CPaaS industry would average 31% through 2030, which should have pointed to a promising future for the company. Instead, Twilio is fighting to stay competitive. To address its financial shortcomings, it has slashed its workforce and dramatically scaled back its stock-based compensation to move closer to profitability. However, tech heavyweights like Microsoft and Amazon have entered the CPaaS business. This has slowed Twilio's business so dramatically that its dollar-based net expansion rate was only 102% in the first quarter of 2024, meaning the average long-term customer increased spending by only 2% over the previous year. That anemic performance extends to Twilio as a whole. Its Q1 2024 revenue was $1.05 billion, an increase of only 4% from the year-ago quarter. Despite the slower growth, cutting operating expenses helped it reduce its Q1 loss to $55 million. In comparison, Twilio lost $342 million in the first quarter of 2023. Nonetheless, free cash flow has since turned positive, coming in at $177 million in Q1, up from the free cash flow of negative $114 million 12 months ago. Also, the company expects organic revenue growth between 5% and 10% in 2024, so improvement could come soon. For now, the stock's performance seems to reflect the low growth rates. The stock is down 22% so far this year, meaning it missed out on the outsized growth that benefited other stocks. That heavily discounted sales multiple is a double-edged sword for Twilio. On the one hand, it is a low valuation that could draw investors under the right circumstances. On the other, its inability to attract a higher sales multiple speaks to the depth of its struggles. Hence, until the company can generate significantly higher revenue growth, it is unlikely to see significant multiple expansion. Unfortunately for Twilio bulls, that lack of multiple expansion probably serves as a warning to watch Twilio stock rather than buy it in the second half of the year. Indeed, the CPaaS business is in for considerable growth, and Twilio's efforts to integrate AI into its apps are an encouraging sign. However, the single-digit revenue growth rates are a sign that competition from Microsoft and Amazon negatively affects Twilio, and the ongoing losses probably demonstrate a limited ability to maintain its competitive advantage over time. Admittedly, its positive free cash flows bode well for Twilio, and the prospects for increased revenue growth could help the stock over time. But until the company can maintain faster growth rates, investors are likely better off avoiding the stock.
[2]
Can Twilio Come Back in the Second Half of 2024?
Like many growth tech stocks, Twilio (NYSE: TWLO) benefited from a fantastic run in 2021 only to hit a wall in the 2022 bear market. Unfortunately, the communications platform-as-a-service (CPaaS) stock has never recovered, and it fell in the first half of 2024. Still, CPaaS plays a critical role in the operations of tech-dependent companies such as Uber and Airbnb. Also, the fact that Twilio stock experienced considerable growth at one time indicates that it could happen again under the right conditions. Hence, it makes sense to look at whether the second half of the year may finally be Twilio's time. The state of Twilio Twilio benefited from initial success because it was a first mover in the CPaaS field. Its tools support text, voice, video, and email through application programming interfaces (APIs). More than 300,000 companies use its technology in some form, including many of tech's top growth companies. Moreover, Grand View Research estimated the compound annual growth rate of the CPaaS industry would average 31% through 2030, which should have pointed to a promising future for the company. Instead, Twilio is fighting to stay competitive. To address its financial shortcomings, it has slashed its workforce and dramatically scaled back its stock-based compensation to move closer to profitability. However, tech heavyweights like Microsoft and Amazon have entered the CPaaS business. This has slowed Twilio's business so dramatically that its dollar-based net expansion rate was only 102% in the first quarter of 2024, meaning the average long-term customer increased spending by only 2% over the previous year. Twilio by the numbers That anemic performance extends to Twilio as a whole. Its Q1 2024 revenue was $1.05 billion, an increase of only 4% from the year-ago quarter. Despite the slower growth, cutting operating expenses helped it reduce its Q1 loss to $55 million. In comparison, Twilio lost $342 million in the first quarter of 2023. Nonetheless, free cash flow has since turned positive, coming in at $177 million in Q1, up from the free cash flow of negative $114 million 12 months ago. Also, the company expects organic revenue growth between 5% and 10% in 2024, so improvement could come soon. For now, the stock's performance seems to reflect the low growth rates. The stock is down 22% so far this year, meaning it missed out on the outsized growth that benefited other stocks. That heavily discounted sales multiple is a double-edged sword for Twilio. On the one hand, it is a low valuation that could draw investors under the right circumstances. On the other, its inability to attract a higher sales multiple speaks to the depth of its struggles. Hence, until the company can generate significantly higher revenue growth, it is unlikely to see significant multiple expansion. Stay on the sidelines with Twilio Unfortunately for Twilio bulls, that lack of multiple expansion probably serves as a warning to watch Twilio stock rather than buy it in the second half of the year. Indeed, the CPaaS business is in for considerable growth, and Twilio's efforts to integrate AI into its apps are an encouraging sign. However, the single-digit revenue growth rates are a sign that competition from Microsoft and Amazon negatively affects Twilio, and the ongoing losses probably demonstrate a limited ability to maintain its competitive advantage over time. Admittedly, its positive free cash flows bode well for Twilio, and the prospects for increased revenue growth could help the stock over time. But until the company can maintain faster growth rates, investors are likely better off avoiding the stock. The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now... and Twilio wasn't one of them. The 10 stocks that made the cut could produce monster returns in the coming years. Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you'd have $722,626!* Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Will Healy has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Airbnb, Amazon, Microsoft, Twilio, and Uber Technologies. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy. The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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Twilio, a cloud communications platform, faces challenges but shows signs of potential recovery. Investors and analysts are closely watching the company's performance and strategic moves in the latter half of 2024.
Twilio, a leading cloud communications platform, has been facing significant challenges in recent times. The company's stock has experienced a sharp decline, dropping by approximately 85% from its peak in February 2021 1. This downturn has left investors questioning the company's ability to regain its former glory and market position.
Despite the overall negative trend, Twilio's financial indicators present a mixed picture. The company's revenue growth has slowed considerably, with only a 15% year-over-year increase in the first quarter of 2024 2. This marks a significant deceleration from the 62% growth observed in 2021. However, Twilio still maintains a strong balance sheet with $3.7 billion in cash and short-term investments, providing a financial cushion for potential strategic moves.
In response to these challenges, Twilio has implemented several strategic initiatives. The company has undergone two rounds of layoffs, reducing its workforce by 17% in September 2022 and an additional 17% in February 2023 1. These cost-cutting measures aim to streamline operations and improve profitability. Additionally, Twilio has been focusing on its Segment customer data platform, which showed promising results with a 30% year-over-year growth in the first quarter of 2024 2.
Despite its recent struggles, Twilio still holds a strong position in the cloud communications market. The company's platform remains popular among developers, and its extensive range of APIs continues to attract businesses looking to integrate communication features into their applications 1. However, increased competition from both established tech giants and emerging startups poses a significant challenge to Twilio's market share.
Investor sentiment towards Twilio remains cautious but hopeful. The company's ability to execute its turnaround strategy and capitalize on emerging opportunities in the cloud communications sector will be crucial in determining its future success. Analysts are closely monitoring Twilio's progress in achieving profitability and its ability to reignite growth in its core communications platform 2.
Several factors could contribute to Twilio's potential comeback in the second half of 2024. The continued growth of its Segment platform, successful implementation of cost-cutting measures, and possible innovations in AI-driven communication solutions could all serve as catalysts for recovery 12. Additionally, any improvements in the broader economic environment may positively impact Twilio's performance.
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