Twilio (NYSE:TWLO) shares rose about 6% in early Wednesday trade after the customer engagement company lifted its full-year forecast following a second-quarter outperformance.
Twilio reported an adjusted EPS of $0.54 on revenue of $1.04 billion. Sales rose 10% year-over-year, as did organic revenue, which was reported at $1.03 billion. On the bottom line, Twilio’s profit per share of $0.54 in Q2 crushed analyst estimates for earnings of $0.29 per share.
“We closed out a strong second quarter, over delivering on both our revenue and profit targets, and generating record quarterly non-GAAP income from operations of $120 million… We also remain committed to continuing to deliver against our profitability targets in any financial environment,” said Jeff Lawson, co-founder and CEO of Twilio.
Business Transformation ‘Takes Time’
Twilio said it generated $120 million in non-GAAP income, with the non-GAAP operating margin coming in at 12%. The software company reported over 304,000 active customer accounts.
Broken down by segments, Twilio’s biggest business unit – Communications – saw its revenue jump 10% to $913 million, including the non-GAAP gross margin of 48.2%, up from the 48.1% reported a year ago. This business segment had more than 289,000 active customer accounts at the end of Q2.
“In Communications, we delivered a strong quarter and are encouraged by continued signs of stabilization across our customer base. The efficiency actions we took have proven to be the right ones and the business is delivering with a more streamlined operating profile,” Lawson added.
The second biggest unit by revenue – Data & Applications – generated $125 million in Q2 revenue from more than 27,000 active customer accounts. Revenue jumped 12% YoY with the non-GAAP gross margin down 20 basis points YoY to 81.7%.
“We now have sales reps ramped in our most critical areas and we are optimistic that our bookings will improve towards the end of the year and that revenue growth will accelerate during 2024,” Lawson said about the Data & Applications segment.
Following a better-than-expected Q2 performance given the difficult macro environment, Twilio raised its full-year outlook for income from operations. The company now expects FY operations income of $375 million (up or down $25 million), up from the prior forecast of $287.5 million (up or down $12.5 million). The new forecast easily cleared analyst targets of $329 million for FY income from operations.
For this quarter, the company sees revenue of $985 million (up or down $5 million) and income from operations of $80 million (up or down $5 million).
Overall, Twilio shares are up 19% year-to-date, just ahead of the S&P 500 which gained about 17% since the start of 2023.
Can Twilio Become an AI Company?
Two months ago, Twilio unveiled CustomerAI – which combines large language models (LLMs) with the customer data that goes through Twilio’s Customer Engagement Platform. The aim of this new product is to allow businesses to mix knowledge and data, which goes through Twilio’s platform, with generative and predictive artificial intelligence (AI) capabilities.
“In this next great era of computing, shaped by advancements in artificial intelligence, brands have a massive opportunity to deepen their customer relationships. To help make that a reality, Twilio is infusing CustomerAI into customer touchpoints across marketing, sales, and service,” CEO Lawson said in a press release.
Twilio says its AI platform will help businesses to improve customer relationships and unlock their full potential by leveraging the latest GenAI technology. Among other things, the CustomerAI tool will help “transform” the contact center and allow senior executives a greater degree of visibility into the trends of their contact centers.
Moreover, the platform will improve the personalized marketing experience, from ideas to execution. For instance, GenAI can suggest if it is better to go with a paid ad or a custom email for a specific marketing campaign.
“Customers are real-time. And they interact with companies in lots of different ways. A customer might be having a tough experience and engaged with the call center, but does marketing know about that? And is marketing suppressing a message or sending something with the right tone? This is one example and traditionally it's been super hard to pull off,” commented Kathryn Murphy, SVP of Product Management at Twilio.
Twilio is due to present the full capabilities of its CustomerAI platform at its ‘SIGNAL’ customer and developer conference that is scheduled for August 23. This event could act as a positive catalyst for shares to re-rate higher if investors can gain more visibility into Twilio’s AI push and whether it can accelerate its transformation.
“A business transformation as big as what Twilio is taking on takes time. It requires tactical focus in the short term and a bold vision for what’s possible in the long term,” Lawson concluded.
Ben Zogby of the trading platform HighStrike also maintains an optimistic view of Twilio’s future. The software company was forced to undergo a major transformation after seeing its shares collapse more than 81% in 2022 as the Fed underwent a rapid rate-hiking campaign to curb inflation. The 2022 underperformance completely wiped out strong Covid-fueled gains from 2020, when the stock rose nearly 250%.
As a result, Twilio announced in February it will cut 1500 jobs or 17% of its workforce. The company is now realizing the benefits of these moves, hence the upgraded operating income guidance. The February announcement comes after the company previously laid off around 11% of its workforce in September 2021.
Zogby believes the integration of AI is enough to keep investor interest in Twilio, which could help to keep the stock afloat during times of turbulence.
Summary
Twilio shares rose on Wednesday after the software company reported better-than-expected Q2 earnings and offered solid Q3 guidance. Moreover, Twilio raised its FY guidance for income from operations after performing two big job-cutting campaigns. In addition to the Q2 earnings report, the upcoming customer and developers conference could also act as a positive catalyst for TWLO stock.
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Shane Neagle is the EIC of The Tokenist. Check out The Tokenist’s free newsletter, Five Minute Finance, for weekly analysis of the biggest trends in finance and technology.