Why Twilio Inc. Plunged 29% Lower Today

By Anders Bylund Markets Fool.com

What happened

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Shares of Twilio (NYSE: TWLO) plunged as much as 28.8% lower on Wednesday.

So what

The provider of cloud-based communications technologies reported first-quarter results on Tuesday night, and it was a strong quarter. The company's own guidance for the quarter pointed to an adjusted net loss of roughly $0.07 per share on top-line sales near $83 million. Analysts largely toed that line. Instead, the company delivered a smaller non-GAAP loss of $0.04 per share and sales of $87.4 million.

At the same time, management presented a soft forecast for the second quarter and slashed full-year expectations. Beat-and-slash performances rarely impress investors, and Twilio shares immediately dove on the news.

Image source: Getty Images.

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Now what

The guidance cut resulted from Twilio's largest customer looking at other options for its digital communications needs. Ride-hailing service provider Uber, which was the only client to account for more than 10% of Twilio's total revenue intakes in 2016, used to rely exclusively on Twilio tools for many tasks. Now, Uber has started to use a variety of communications platforms, varying by use case and geography. Twilio CEO Jeff Lawson expects Uber to remain a large and important client, but the earthshaking importance of Uber's orders will continue to shrink over time.

Twilio is a relatively small business with a short operating history, and share prices have oscillated between $24 and $71 in its first 10 months on the market. This plunge is not the end of the world, but a sign that the company is refining its business model -- in uncomfortable ways.

With or without Uber, Twilo's sales soared 47% higher in the first quarter and the company serves more than 40,000 clients today. I'm not saying that you should back up your truck to this unprofitable and volatile stock today, but investors with a stomach for risky bets might want to pick up a few shares at today's much lower prices.

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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.