Twilio Stock Pops 18% After Earnings Beat. What Drove the Record Quarter.

Twilio saw “broad-based strength across customer segments,” its CEO said. (Dreamstime)

Key Points

• Twilio reported record third-quarter adjusted earnings of $1.25 per share and revenue of $1.3 billion, exceeding analyst expectations.
• The company provided an upbeat fourth-quarter outlook, forecasting revenue between $1.31 billion and $1.32 billion.
• Adjusted gross margin decreased to 50.1% in the third quarter from 50.7% in the second quarter and 52.9% year-over-year.

Twilio shares soared Friday after the cloud-communications company reported record third-quarter results and had an upbeat outlook for the fourth quarter.

The stock surged 18% to $132.85 and is now up 23% this year. It was a Barron’s stock pick last month.

Twilio posted adjusted earnings of $1.25 a share, surpassing both its own forecast and analysts’ consensus estimate of $1.08. Revenue totaled $1.3 billion, above Wall Street’s call for $1.25 billion and up 15% from last year. Both the profit and revenue figures marked all-time highs.

The San Francisco-based company forecast fourth-quarter revenue of $1.31 billion to $1.32 billion; analysts had estimated $1.28 billion analysts. Adjusted operating income is expected to total $235 million at the midpoint; Wall Street’s number was $222 million.

“We saw broad-based strength across customer segments, ranging from startups to enterprises to [independent software vendors],” said CEO Khozema Shipchandler in a statement.

In August, after the company’s second-quarter report, the stock tumbled on investor angst about single-digit annual revenue growth and shrinking gross margin.

Gross margins shrank again third quarter. Adjusted gross margin dropped to 50.1% from 50.7% in the second quarter and 52.9% from the previous year.

The record revenue more than made up for it, though. The company has now reported six consecutive quarters of accelerating revenue growth and four straight double-digit gains.

Twilio’s voice solutions, which now incorporate artificial intelligence, contributed heavily to the strong quarter, wrote Oppenheimer analysts. Revenue from software add-ons also grew at a quickening pace.

“With voice accelerating to mid-teens growth and software add-ons
contributing to net retention, Twilio is demonstrating the power of its platform strategy while maintaining operating discipline,” wrote Ittai Kidron, the lead analyst.

Oppenheimer reiterated an Outperform rating and raised its price target to $145 from $135.

Write to Nate Wolf at nate.wolf@barrons.com