Twilio's AI Push, Microsoft Partnership Spark Analyst Optimism

Needham analyst Joshua Reilly maintained a Buy rating on Twilio TWLO and reiterated the $125 price forecast on Friday.

Over the last couple of days, Reilly attended the Twilio Signal customer conference in San Francisco and came away incrementally positive about the company’s products, solutions, and customer relationships.

Overall, feedback from partners and customers highlighted the platform’s increasing usage and complimentary reviews on the product roadmap.

Also Read: Twilio Stock Darts Higher On Better-Than-Expected Q1 Results, Raised Guidance: Operating Discipline Is ‘Paying Off’

The analyst’s partner discussions indicated an increasing pipeline of projects while they manage a more efficient implementation process utilizing AI.

He noted the company’s strategic positioning to boost cross-selling, emphasizing that the recently announced  Microsoft Corp. MSFT partnership will drive greater platform usage.

The collaboration with Microsoft delivers key functionalities, including capabilities for building multi-channel AI agents for automating and improving customer engagement, AI agents that assist live agents in the contact center via enhanced Twilio Agent Copilot capabilities, and multi-modal solutions for enhancing and improving digital interactions between businesses and customers.

Reilly remained bullish on Twilio’s valuation, conservative second-half revenue assumptions, and cross-sell momentum, maintaining the shares as his Conviction Pick for 2025. With Twilio having cleaned up many of its operational challenges over the past 24 months, the analyst noted that the focus moving forward is on the product, and customers will benefit.

A key challenge for customers is implementing email (Sendgrid), messaging, and CDP, which are essentially three separate platforms on which the customer receives three separate bills. Reilly noted the company is working to streamline the billing process to make bundling easier and improve the customer experience process. While developing billing systems takes time, whether building a custom solution or implementing packaged software, he anticipates a hybrid approach.

CDP currently operates on a subscription model, while other services are usage-based. Given the trend of vendors like Zuora integrating subscription and usage-based billing, a packaged software solution could be beneficial. However, the analyst expects the net benefit to be faster quoting of bundling, and accelerate the pace of cross-selling, but that could be 12-18 months away.

In conjunction with its customer event, Twilio announced a product partnership with Microsoft focused on their Conversational AI offerings. At Signal 2025, Twilio also launched several new products and solutions, with Verify and Lookup reported as particularly popular based on customer feedback. Another key product item discussed at the conference was the general availability of ConversationRelay.

Based on his customer discussions, Reilly noted that the net takeaway for investors is that they can sell ROI-driven solutions, and they are margin accretive. Management’s investor Q&A on the first day further underscored this point, with several key insights emerging.

Discussions with management allowed the analyst to explore the projected trajectory of voice volumes in the coming years, suggesting a potential for growth significantly exceeding 2024 levels for several years. Reilly also observed sustained bullishness among partners and customers regarding the Twilio platform, coupled with existing budget allocations for cross-selling initiatives.

He noted that Twilio’s business model insulates the company from headwinds other software vendors will face when transitioning from seat to usage-based pricing. Reilly projected fiscal 2025 revenue of $4.82 billion and EPS of $4.45.

TWLO Price Action: Twilio shares were trading higher by 1.88% to $116.38 at the last check on Friday.

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