Twilio Outperforms Q1 2023 Expectations, Cautious Outlook for Q2 Amid Shifting Market Conditions

Twilio Inc., a leading communications software company, reported a revenue of $1.01 billion in the first quarter of 2023, slightly surpassing Wall Street analysts' expectations of $1 billion. The company's adjusted profit for the quarter reached 47 cents per share, significantly higher than the anticipated 30 cents per share. Despite beating expectations, Twilio shares dropped 17% in Wall Street trading following a lower-than-expected revenue forecast for the second quarter of 2023, ranging between $980 million and $990 million, as opposed to analysts' expectations of $1.05 billion.

Twilio CEO Jeff Lawson attributed the moderation in consumer-facing usage patterns and increased crypto usage from last year as reasons for the lowered forecast. RBC Capital Markets analyst Rishi Jaloria reacted to Twilio's results as lackluster, noting the thin revenue pace in Q1 and the Q2 growth forecast of only 4% to 5%. Jaloria subsequently lowered his target price from $75 to $55 and maintained a "market perform" rating on the stock. Conversely, William Blair analyst Matt Stotler remained optimistic, rating the stock "Outperform" without a target price, citing Twilio's leadership position in a large and underpenetrated market.

The San Francisco-based cloud service provider saw a surge in demand during the pandemic as businesses sought to operate amid lockdowns. However, growth has slowed down as customers aim to optimize cloud spending amid economic turbulence. Twilio's restructuring effort in February involved eliminating about 17% of its workforce and closing some offices to focus on profitability. In the first quarter ending March 31, 2023, the company reported over 300,000 active customer accounts, up from over 268,000 the previous year. Adjusted net income reached $0.47 per share, beating analysts' average estimate of $0.21.

Twilio's Q1 2023 non-GAAP earnings of 47 cents per share showed a significant improvement from the previous year's break-even earnings. The growth in non-GAAP earnings was driven by higher revenues and cost savings through headcount reductions, surpassing the Zacks Consensus Estimate of 20 cents per share. Despite strong results, Twilio's shares fell 14.7% as the company's Q2 revenue guidance fell short of consensus.

The company's revenue growth was primarily attributed to the expansion of its international business, acceleration of digital transformation projects across industries, and enhancement of customer experiences through product portfolios like Segment, Flex, and Engage. Twilio's dollar-based net expansion rate reached 106% in the reported quarter, down from 110% in the previous quarter and 127% in the year-ago quarter. The number of active customer accounts increased to 300,000 as of March 31, 2023, up from 290,000 at the end of the fourth quarter of 2022 and 268,000 as of March 31, 2022.

Twilio's non-GAAP gross profit climbed 14.3% year over year to $526.1 million, though the non-GAAP gross margin contracted 100 basis points (bps) to 52%. The company reported a first-quarter non-GAAP operating income of $103.8 million, up from the year-ago quarter's non-GAAP operating profit of $5 million, and a non-GAAP operating margin of 10%, up from 1% in the year-ago quarter.

As of March 31, 2023, Twilio had cash and cash equivalents and short-term marketable securities of $3.95 billion, down from $4.16 billion at the end of the fourth quarter of 2022. The company's long-term debt was $987.8 million as of the end of the first quarter.