Shares of Twilio (NYSE: TWLO) dropped 18% last year as investors feared a slowdown in the company's business after one of its important customers, Uber, decided to switch to an in-house solution. The Uber news broke in May. Investors lost confidence in the cloud communications platform specialist's ability to retain its customer base, and decided to overlook its rapidly growing revenue and efforts to diversify the customer base.
Twilio has an opportunity to set the record straight when it releases its fiscal fourth-quarter results on Feb. 13. But can it get back into investors' good books? Let's find out.
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What to expect?
Twilio told investors in November that it expects to report a Q4 loss of round $0.06 per share on roughly $103.5 million in revenue. By comparison, the company had reported $81.9 million in revenue and a break-even bottom line in the prior-year period.
This bottom-line drop makes sense as Twilio is ramping up expenses on sales and marketing to acquire more customer accounts. During the third quarter, the company's outlay on sales and marketing jumped almost 63% year over year. The strategy worked in its favor as active customer accounts grew close to 35% from the prior-year period, allowing it to report record revenue during the period.
So, investors shouldn't be reading too much into Twilio's expected fourth-quarter loss as it is setting itself up for long-term growth. Instead, all eyes should be on Twilio's outlook as its full-year guidance is going to provide greater clarity over where the company is heading in 2018 and beyond.
Twilio is coming into 2018 with an extremely diversified customer base. During last year's fourth quarter, Uber had supplied 17% of the company's revenue. But Twilio has bumped up its marketing efforts to gain new customers and the ride-sharing company contributed just 5% of revenue during this year's third quarter.
What's more, Twilio has impressively reduced its customer concentration as its current biggest client, WhatsApp, accounts for just 6% of revenue. Additionally, Twilio's growth this year will be boosted by an increase in its "base" customer revenue.
Twilio classifies the revenue generated from customers who have entered into contracts longer than 12 months as base revenue, and this metric jumped 43% during the third quarter. Excluding Uber's business, Twilio's base revenue was up 63%. Both these numbers were greater than the overall growth in the company's active customer accounts.
Additionally, Twilio's product upgrades with the help of emerging tech trends such as artificial intelligence (AI) can help it land more customers. For instance, the company's latest speech recognition platform uses AI to gauge the intent of what callers want on a call, allows for real-time transcription of the words spoken, and also captures the important data points mentioned during the course of a call.
Such a platform can help Twilio clients improve their customer service programs, as automation will allow them to reduce the time taken to service each caller. For instance, Twilio's solution enables the customer to simply tell the IVRS (interactive voice response system) the menu option they want to go to. So, corporations will be able to service more clients by cutting down time-consuming maneuvers such as dialer-based navigation.
All in all, Twilio's upcoming quarterly report should confirm that the company is pulling the right strings to boost its business in the long run. This should help improve investor confidence in the company.
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