Can Twilio Bounce Back After Last Week's 27% Drop?

By Rick Munarriz Markets Fool.com

Twilio(NYSE: TWLO)was rough on its investors last week. The stock was the New York Stock Exchange's third biggest loser, surrendering 27.47% of its value after posting disappointing financial results last week.

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The provider of real-time communications solutions for app developers posted respectable growth in the first quarter. Revenue climbed 47% to $87.4 million. Analysts were only holding out for a 41% uptick. Twilio's adjusted loss of $0.04 a share was also better than the $0.06 a share that Wall Street pros were targeting. A beat on both ends of the income statement isn't usually followed by a double-digit percentage drop in a stock's price, but then we get to Twilio's problematic guidance.

Twilio is forecasting $85.5 million to $87.5 million in revenue for the current quarter, and while that represents more decelerating top-line growth -- 34% year over year at the midpoint is its weakest showing -- the real dagger is that it will be the first period of sequential decline at Twilio, unless it lands at the very top of its range. Analysts were modeling $87.8 million. Twilio's guidance also calls for a larger quarterly deficit than the $0.08 a share that Wall Street was expecting.

Image source: Twilio.

App pro prose

It's not just Twilio's guidance for the second quarter that's problematic. Twilio is also hosing down its guidance for all of 2017. Its refreshed outlook calls for $356 million to $362 million in revenue this year, below the initial range of $364 million to $372 million on the top line, which it was eyeing back in February. The per-share loss of $0.27 to $0.30 that it's now targeting is also nearly twice as much the red ink that it was projecting earlier this year.

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Twilio blames the shortfall on Uber. The leading car-sharing service is relying less on Twilio to handle its in-app communications, opting for other solutions in different operating territories. Uber went from accounting for 17% of Twilio's revenue during the fourth quarter of last year to just 12% in the second quarter, and Twilio sees that contribution continuing to decline this year.

Twilio remains a popular platform. There are 40,696 active customer accounts on its rolls, 42% more than a year earlier. Uber and WhatsApp are the two largest players on Twilio, but no other app currently accounts for more than 2% of the revenue. Twilio considers Uber's decision to diversify an outlier, but obviously the next few quarters will reveal if that's the case.

Analysts were mixed in their reaction to the poorly received report.Brent Bracelin at Pacific Crest downgraded the stock to a neutral sector weight rating. Oppenheimer lowered its price target from $50 to $38. Canaccord calls the sell-off extreme, but it did lower its price goal from $40 to $33. JMP Securities feels that Twilio remains well positioned, and JPMorgan made the most interesting observation in arguing that if you back out Uber, Twilio's guidance actually increased.

Twilio is going to be a volatile stock until we see how the Uber situation plays out. It's also not comforting to see a platform's biggest customer test the waters of alternatives, leading investors to wonder if others will follow suit, even with Twilio dismissing it as an outlier. Twilio's stock shed more than a quarter of its value this week, but unless it can avoid a sequential decline in revenue for the current quarter, it will be a challenge to claw its way out anytime soon.

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