Twilio Shares Drop Nearly 19% After Mixed Earnings Report

Twilio Stock Plummets Despite Beating Analyst Expectations

Shares of Twilio (NYSE: TWLO) plunged nearly 19% on Friday afternoon, following the company’s latest earnings announcement. Although Twilio’s second-quarter financial results surpassed analyst estimates, its more cautious outlook for the upcoming quarter disappointed investors and triggered a significant sell-off.

Q2 Performance Exceeds Projections

For the second quarter, Twilio reported a 13% year-over-year increase in revenue to $1.23 billion. Adjusted (non-GAAP) earnings per share came in at $1.19, both figures comfortably beating Wall Street expectations. Twilio also showed strong operational metrics, including a 10% rise in total customers compared to the prior year. Its dollar-based net expansion rate—a key measure tracking how much more existing customers are spending, adjusted for churn—improved to 108%, up from 102% a year ago.

Weaker Guidance Disappoints Investors

Despite a robust quarter, Twilio’s forward guidance was less encouraging. Management projected revenue growth of 10% to 11% for the third quarter, a slowdown from the recent pace. Additionally, the company expects its adjusted operating income to fall sequentially—from $221 million in Q2 down to $210 million in Q3—hinting at margin pressure ahead. This guidance spooked the market, resulting in Friday’s steep drop in share price.

Valuation: Attractive Price or Justified Discount?

Twilio is currently trading at around 22 times this year’s adjusted earnings estimates, a lower valuation compared to many other software-as-a-service (SaaS) companies. However, heavy use of stock-based compensation—totaling $149 million last quarter—means the company’s profitability is less robust under generally accepted accounting principles (GAAP). Twilio maintains a strong balance sheet with over $2.5 billion in cash and no debt, which supports share buybacks to offset dilution. Still, the lack of consistent GAAP profitability may hinder the stock's ability to return to its 2021 highs in the near term.

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