Twilio Reducing Its Reliance On Uber, And That's A Good Thing

Twilio Inc TWLO cautioned investors in May that one of its biggest clients, Uber, is scaling back its relationship. The company's announcement sent the stock tumbling as Uber alone contributed 12 percent of its total revenue in the first quarter.

However, Twilio's second-quarter earnings report signals that the impact of its loss to Uber is receding and the company appears to have reduced its reliance on the ride-hailing company, Argus' Jim Kelleher noted in a research report. Specifically, Uber's business contributed 9 percent of revenue in the second quarter, and the contribution will likely move lower to a mid-single digit over time.

Twilio also derived 91 percent of revenue from active users in the second quarter, up from 87 percent a year ago. Also, perhaps ironically, the company continues to emphasize other major customers, including Lyft.

Not A Good Time To Buy

However, while the company showed encouraging signs on the Uber-front, management's third-quarter guidance implies that revenue and other metrics will "stall" near second-quarter levels, the analyst continued. This may only be partially attributed to Uber but is also indicative of "instability" in the company's target markets.

"Even taking into account the Uber impact, we were disappointed with 3Q17 guidance, which calls for performance similar to 2Q17," the analyst wrote.

Bottom line, Twilio can over time achieve the necessary scale that is needed for incremental revenue to immediately drop to its bottom line and generate margin expansion and earnings per share growth, Kelleher continued. But until this is accomplished the analyst is sticking with a Hold rating.

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