'Still A Second-Half Story': Twilio Analysts React To Mixed Q1 Earnings

Twilio Inc TWLO shares dropped 2.7% on Thursday after the company reported conservative second-quarter guidance.

On Wednesday, Twilio reported an adjusted first-quarter EPS loss of $1.23, missing consensus analyst estimates of a 21-cent loss. Revenue for the quarter was $875.4 million, beating analyst expectations of $864 million. Revenue was up 48% from a year ago.

Twilio reported 268,000 active customer accounts as of March 31, up from 235,000 a year ago. The company reported $32.2 million in revenue from Zipwhip, which it acquired in July 2021 for $850 million.

Looking ahead, Twilio guided for second-quarter revenue of between $912 million and $922 million, short of Wall Street estimates of $921 million.

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Profitability Concerns: Morgan Stanley analyst Meta Marshall said investors have been concerned about Twilio's gross margins and profitability potential in recent quarters.

"We think Q1 gross margins above buy side expectations (up 130bps Q/Q), organic growth largely in-line with expectations (~35%) and recommitment to 30% annual growth targets should help allay these concerns, particularly given results of other market participants," Marshall wrote.

JMP analyst Patrick Walravens said an organic revenue growth acceleration in the first quarter is a bullish sign.

"We think over time this company will exceed investors' expectations for margins and profitability — although there will certainly be bumps in the road such as we saw in 4Q," Walravens wrote.

Piper Sandler analyst Brent Bracelin said first-quarter growth was better than feared, but 2022 is shaping up to be a transitional year for Twilio.

"Part of the acute investor debate was the abnormal slowdown in reported Q4 growth in North America, which proved to be inaccurate and retroactively restated to 34% vs. 40%," Bracelin wrote.

Second-Half Story: Wells Fargo analyst Michael Turrin said Twillio has a series of bullish catalysts ahead in the second half of the year that should support the stock.

"Though the 27-29% y/y organic guide for 2Q faces another 50+% compare, we note that the comps in the 2H ease considerably, setting TWLO up for a likely re-acceleration of organic growth in 2H (and an ability to reach its 30%+ organic growth target for FY22)," Turrin wrote.

RBC Capital Markets analyst Rishi Jaluria said Twillio is "still a second-half story" in 2022.

"As expected, 1H has lots of noise (see guide miss), but we continue to believe the 2H setup looks favorable," Jaluria wrote.

Needham analyst Ryan Koontz said Twilio's gross margins have stabilized heading into what could be a big second half of 2022 for Twilio.

"NG GM improved 130bps q/q and is expected to stabilize over C22, and management affirmed the company's target of achieving consistent NG operating profitability in C23," Koontz wrote.

Ratings And Price Targets:

• Morgan Stanley has an Overweight rating and a $240 target.
• JMP has a Market Outperform rating and a $250 target.
• Wells Fargo has an Overweight rating and a $225 target.
• RBC Capital Markets has an Outperform rating and a $200 target.
• Needham has a Buy rating and a $200 target.
• Piper Sandler has an Overweight rating and a $220 target.

TWLO Price Action: As of Friday morning, Twilio shares are down 6.36% to $108.15.