Twilio Inc. Shares Plunge on Soft Guidance

By Anders Bylund Markets Fool.com

Shares of cloud-based communications specialist Twilio (NYSE: TWLO) fell 30% in after-hours trading on Tuesday, following the company's first-quarter earnings release.

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Twilio's first-quarter results: The raw numbers

Metric

Q1 2017

Q1 2016

Year-Over-Year Change

Revenue

$87.4 million

$59.3 million

47%

Net income

($14.3 million)

($6.4 million)

(123%)

GAAP Earnings per share

($0.16)

($0.37)

(43%)

Data source: Twilio.

What happened with Twilio this quarter?

Comparisons to the year-ago period must account for the fact that Twilio entered the public stock market in June, 2016. The stock offering expanded Twilio's share count more than fivefold and rebuilt the balance sheet around $150 million of IPO-based cash.

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  • In guidance figures published with the fourth-quarter report, Twilio sketched out first-quarter revenues near $83 million and an adjusted net loss of $0.07 per share. The final report improved on both of those targets, including an adjusted net loss of $0.04 per share.
  • Twilio reported approximately 40,700 active customer accounts in the first quarter, up from 28,700 in the year-ago period.

The company also provided fresh guidance targets for the second quarter and updated the existing outlook for fiscal year 2017 as a whole.

  • In the second quarter, sales should rise 34% year over year to land near $86.5 million. Management expects an adjusted net loss of $0.10 per share, digging deeper from a $0.08 loss per share in the second quarter of 2016.
  • For the full year, the top-line sales target was lowered from $368 million to roughly 359 million. On the bottom line, projected non-GAAP net losses were inflated from $0.17 to $0.28 per share. This is the reason why Twilio shares plunged in reaction to the news.

Image source: Getty Images.

What management had to say

Twilio CEO Jeff Lawson underscored the healthy sales growth his company continues to enjoy. However, everything is not wine and roses.

"We are seeing some changes in the relationship with our largest customer," Lawson conceded. That would be ride-hailing service Uber, which was the only company to have accounted for more than 10% of Twilio's sales in 2016.

Uber uses Twilio's technologies to drive communication with drivers and improve the company's marketing reach, but appears to have turned its sights on in-house development of similar tools. According to comments Lawson made in the first-quarter earnings call, Uber's revenue impact decreased from 17% in the fourth quarter to 12% in this report, and should be expected to fall further.

Looking ahead

The young company's business model is changing as it matures. The loss of large order volumes from Uber and other major customers is balanced by a dramatic increase in the number of client accounts. Very few customers have the needle-moving power that Uber wields here -- Twilio's third-largest client accounted for only 2% of this quarter's total sales.

So Lawson and his team are learning the ropes of long-term forecasting. Expect guidance targets to drift down into safer territory as this adjustment period continues, and don't be shocked if the company makes a few more mistakes along the way. That's part of growing up for any high-growth business, and Twilio still holds a seat under that umbrella.

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Anders Bylund has no position in any stocks mentioned. The Motley Fool recommends Twilio. The Motley Fool has a disclosure policy.