Significant Stock Repurchases at Twilio and DNOW

February 5, 2025

There were so many notable stock buyback announcements since the start of 2025.

Beyond the two stocks we discuss below, there were several major buyback announcements during the last month, including Netflix's (NFLX) $15 billion additional buyback, which accounts for 4% of its market cap, GE Aerospace's (GE) $7 billion buyback representing 3% of its market cap at the time of announcement, and HCA Healthcare's (HCA) significant $10 billion buyback, making up 12% of its market cap. In just the first month of this year, 20 companies announced buybacks worth $1 billion and more.

Twilio Inc. (TWLO): $145.92

Market Cap: $22.38B

EV: $20.91B

I first came across Twilio from a Fortune magazine article before the company went public and then invested in the company when I noticed founder Jeff Lawson purchase shares in the open market when the IPO related pop in the stock price faded. The stock went on a huge roller coaster ride from there, up 1,600% at one point before coming back to earth.

I mentioned the company in the introduction of my book The Event-Driven Edge in Investing and we also covered the company in our C-Suite article last year, following Jeff Lawson's sudden resignation.

Twilio currently scores 73 on our IA Score quant model without including momentum and valuation factors. We typically consider companies scoring above 70 for further research but there are always exceptions. Twilio's stock soared on January 24th, fueled by optimistic targets unveiled at its annual Investor Day, and has been climbing steadily since.

As a leading cloud communications platform-as-a-service (CPaaS) provider, Twilio enables businesses to seamlessly integrate voice, SMS, video, and email communication into their applications via APIs. Its solutions are at the core of customer engagement for major companies like Airbnb, and Shopify, making it a critical player in the digital communications space.

Key Insights

• Twilio's turnaround under its new CEO has been remarkable, with shares up over 100% in the past year.
• The company projects GAAP operating profitability in 2025 and aims to generate over $3 billion in cumulative free cash flow during the next three years.
• Twilio maintains a strong net cash position and has been aggressively buying back shares, retiring 15% of its stock over the last six quarters.
• A leaner cost structure, with a 40% headcount reduction since Q3'22 and an 8% drop in stock-based compensation over two years, has cut losses, strengthened profitability, and generated strong free cash flow.
• Twilio is gaining traction among AI startups, with emerging AI companies increasingly selecting its platform for customer engagement solutions.
• International expansion—currently representing less than 10% of its total addressable market—opens up a largely under-penetrated opportunity that could serve as a powerful growth catalyst over time.

Twilio's strength lies in programmable communications, enabling developers to embed messaging and voice features without telecom infrastructure. As AI and digital transformation reshape customer interactions, Twilio remains central to modern business communications.

Currently, 65% of revenue comes from the U.S., while 35% is international. However, the global market represents less than 10% of its total addressable market (TAM), presenting significant growth potential if Twilio expands internationally.

Leadership Driving Twilio's Turnaround

The appointment of Khozema Shipchandler as CEO in January 2024 marked the beginning of Twilio's turnaround story. An internal promotion, Shipchandler quickly shifted gears, steering the company toward a stronger, more efficient future. With over 25 years of experience, he previously served as President of Twilio Communications, where he led innovation and operational improvements.

Prior to that, he held key roles as Twilio's COO and CFO. Before joining Twilio, Shipchandler spent 22 years at GE, holding leadership positions in Industrial Internet, Corporate Audit, and Aviation, across the U.S., Middle East, and Singapore. He holds a Bachelor of Arts from Indiana University, Bloomington, and currently serves on the boards of Smartsheet and Ethos. Twilio's CFO Aidan Viggiano also spent 18 years at GE, joined Twilio in 2019 and was promoted to the role of CFO in 2023.  

Financials

Twilio's revenue has surged from $1.13 billion to $4.15 billion over the past five years, achieving a 34% CAGR. Net losses have significantly narrowed, putting the company on the brink of GAAP profitability. While net cash has declined recently, it still accounts for more than 10% of Twilio's market cap. Importantly, Twilio has generated positive free cash flow for six straight quarters.

Source: InsideArbitrage

Valuation

With a forward P/E of 34.78 and forward EV/EBITDA of 24.62, the valuation appears expensive. Investors are probably willing to pay up because of the company's strong balance sheet, acceleration in top-line growth, and ongoing share repurchases.

Peers

Twilio's stock has significantly outperformed the S&P500 and other major players like Zoom Video Communications, Inc. (ZM) and RingCentral, Inc. (RNG) over the last year. There is some mean-reversion risk if tech stocks like Twilio fall out of favor.

Source: Seeking Alpha

Share Repurchase

Twilio does not pay a dividend, opting instead for share repurchases to deliver shareholder value. The company plans to return an annual average of 50% of its free cash flow from 2025 to 2027. Over the past six quarters, Twilio has reduced its share count by 15%, completing $3 billion in share repurchases since Q1 2023. The company recently announced a new $2 billion buyback program through the end of 2027, representing around 11.5% of its market cap at the time of announcement.

With annual stock-based compensation (SBC) running at $600 million, some of this buyback will be used to offset dilution from SBC and the rest will help bring down shares outstanding as we have seen in the recent past.

Source: InsideArbitrage

Q3 Results

Twilio exceeded expectations in Q3 2024, posting 10% year-over-year revenue growth, well above the projected 6%. Notably, the company has consistently outperformed revenue and EPS estimates for eight consecutive quarters.

Source: Twilio (Q3 Earnings Presentation)

Twilio will report Q4 results on February 13. The company has set bullish financial targets through 2027.

Source: Twilio (2025 Investor Day Presentation)

Bottom Line

Twilio's strong balance sheet, with nearly 10% of its market cap in cash, combined with an aggressive share repurchase strategy, underscores both its financial strength and ability to be shareholder friendly. The company's accelerating revenue growth, the CEO's solid execution over the past year, and its path to breakeven create a compelling case for further upside. Their recent analyst day painted a picture of revenue growth that prompted 23 analysts to revise their earnings expectations upward. This is a highly volatile stock that brings with it significant risk of mean-reversion. With the ouster of the founder/CEO after his shares lost their super-voting rights in 2023, in some ways Twilio might be setting itself up to become a potential acquisition candidate.  

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DNOW Inc. (DNOW): $15.10

Market Cap: $1.6B

EV: $1.38B

With over 160 years of industry experience, DNOW Inc. (DNOW) has established itself as a premier global distributor serving the oil & gas, industrial, and energy sectors, forming a critical link from drilling to distribution. Operating under the DistributionNOW brand, the company maintains a vast network of 165+ locations worldwide. Expanding through both organic growth and acquisitions, the company has a global footprint, with distribution centres, warehouses, and customer service locations across North America, Latin America, Europe, the Middle East, and the Asia-Pacific region. The US is the major contributor of revenue with 79%, followed by Canada with 11%.

Key Insights

• DNOW serves as a supplier of maintenance, repair, and operations (MRO) products, safety equipment, and engineered solutions with a catalogue of 300,000+ SKUs (Stock Keeping Units).
• The company is focused on expanding beyond traditional oil & gas markets to capture opportunities in industrial, renewable, and energy transition sectors, thus mitigating the impact of fluctuations in the cyclical energy industry.
• Debt-free balance sheet and a net cash position of $217 million positions the company to invest in strategic growth opportunities.
• Active buybacks including the recently approved $160 million share repurchase indicate shareholder friendly capital allocation.

DNOW is a one-stop provider of critical products and supply chain solutions that support the upstream, midstream, and downstream energy sectors, as well as various industrial markets. The company's offerings include MRO supplies, pipes, valves, fittings, electrical components, and pumping solutions. It also provides modular process, production, measurement, and control systems. Beyond physical products, DNOW offers digital procurement tools and inventory management services to optimize supply chain operations for industrial clients.

Source: DNOW (Investor Presentation)

Strategic Initiatives

• Expanding Market Reach – DNOW continues to broaden its presence in industrial and energy markets beyond traditional oil & gas.
• Digital Transformation – Investing in digital solutions like eCommerce and automation to enhance customer engagement.
• M&A Strategy – Over the past 9 years, it has integrated 11 businesses to produce an outstanding pump distribution, rental and service business, combined with engineering, design and fabrication of process production and measurement equipment, which naturally complements its U.S. energy centric business.

Source: DNOW (Investor Presentation)

Market Drivers & Demand Trends

DNOW's demand is driven by oil and gas drilling, production, refining, and industrial activities, influenced by global energy supply, economic conditions, and geopolitics. Higher oil prices boost drilling and infrastructure investments, increasing demand for DNOW's equipment and MRO supplies.

In the U.S. market, active rigs, well completions, and new wells drilled—key drivers of revenue for DNOW—have each dropped by over 12% year-over-year. Yet, the company has effectively cushioned itself from this impact through its diversified revenue streams, demonstrating strong adaptability in an otherwise challenging oil and gas environment.

Recently, Trump called for Saudi Arabia and OPEC to cut oil prices. While OPEC+ has not yet responded, early indications suggest they are unlikely to alter their planned production increase in April. This bodes well for DNOW, as higher production levels typically lead to greater industrial activity, driving increased demand for its products and services.

DNOW remains optimistic about midstream growth. Management sees this sector as a key focus due to its low servicing costs and high-volume transaction potential. While margins are slightly lower, strong supplier relationships and product access make midstream a natural extension of DNOW's upstream business. Notably, the midstream segment now accounts for approximately 20% of DNOW's total revenue and the company aims to drive further growth and profitability in 2025 from this sector.

As the world shifts toward renewable energy, DNOW is adapting by expanding into CCUS (Carbon Capture, Utilization, and Storage.), and sustainable technologies. The number of CCUS projects grew 60% in 2024, with 44 new facilities under construction, a 70% year-over-year increase.

Financial Strength & Shareholder Value

With a debt-free balance sheet and a net cash position of $217 million, DNOW is well-equipped to pursue strategic growth opportunities while delivering value to shareholders. In the third quarter, DNOW generated an additional $72 million in free cash flow, bringing the trailing 12-month total to $273 million. This performance was driven by record growth in U.S. Process Solutions, contributions from recent acquisitions, and efficient inventory management—all achieved despite a challenging oil and gas environment, lower commodity prices, and ongoing industry consolidation.

Source: InsideArbitrage

DNOW does not pay dividends but focuses on share repurchases to increase shareholder value. It recently doubled its share repurchase program to $160 million, following the successful completion of its $80 million inaugural buyback, originally authorized through 2024. The new program represents around 11% of its market cap at announcement. Over the past two years, the company has steadily reduced its shares outstanding by nearly 4%, demonstrating its disciplined approach to capital allocation

Competitive Landscape

DNOW operates in the highly competitive industrial distribution sector, competing with companies like MRC Global Inc. (MRC) and DXP Enterprises, Inc. (DXPE). While DNOW has outpaced the S&P 500 over the past year, its performance has been moderate compared to its peers. However, it stands out with the best margins and the strongest balance sheet, managing to achieve a net income margin of 8.7% despite a low gross margin of 22.87%. With a forward P/E of 20.68 and forward EV/EBITDA of 8.91, DNOW appears undervalued compared to its peers. This discount may stem from market concerns over its relatively low year-over-year revenue growth, despite its financial strength.

Risks

• Earnings are tied to crude oil and gas prices, which are influenced by OPEC decisions, geopolitical instability, and global demand fluctuations.
• Industrial slowdowns or supply chain disruptions could impact growth.
• Higher interest rates and inflation can increase DNOW's operating costs and reduce customer spending on infrastructure projects.

Conclusion

DNOW remains a key player in energy and industrial distribution, supported by a debt-free balance sheet, ongoing share buybacks, and a growing digital presence. The company is actively expanding beyond oil and gas, targeting midstream, renewables, and high-growth industrial sectors like water and mining. Additionally, OPEC's plans to increase oil production present a favorable tailwind, further supporting demand for DNOW's products and services. While commodity price swings and market cycles present challenges, it will be interesting to see how DNOW's commitment to diversification, operational efficiency, and new revenue opportunities plays out in the years ahead.

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Disclaimer: I hold long positions in Netflix (NFLX), General Electric (GE) and Twilio (TWLO). Please do your own due diligence before buying or selling any securities mentioned in this article. We do not warrant the completeness or accuracy of the content or data provided in this article.