Twilio's stock experienced a decline today.
Twilio Experiences Severe Sell-Off Due to Weaker-Than-Expected Q3 Guidance
Twilio, the cloud communications company, experienced a severe sell-off in its shares despite a strong Q2 2025 performance. The sell-off was not driven by the Q2 results themselves, but by Twilio’s cautious and weaker-than-expected guidance for Q3 that cast doubt on near-term profitability and growth.
In Q2, Twilio's revenue soared to $1.23 billion, a 13% increase from the previous year. The company's dollar-based net expansion rate stood at 108%, indicating a strong customer retention and growth. Twilio's adjusted earnings per share in the second quarter were $1.19, exceeding analyst expectations on all counts. However, the company's forecasted Q3 earnings per share missed Wall Street consensus, which drove the negative market reaction.
Twilio projected revenue growth of 10% to 11% for the third quarter, representing a two-point deceleration. Despite the strong earnings report, Twilio's guidance for the future was weaker than expected, raising concerns about the sustainability of its growth and potential margin pressures.
Investors were also concerned about profitability pressure from lower-margin products and competitive headwinds within cloud communications. Twilio has been investing heavily in its business, leading to a high level of stock-based compensation. In the quarter, Twilio paid out $149 million in stock-based compensation to employees.
Twilio's shares fell 18.9% on Friday, as of 3:47 p.m. ET, reflecting the market's reaction to the weaker-than-expected guidance. Despite the sell-off, Twilio's shares are considered quite cheap compared to other software-as-a-service stocks, trading at 22 times this year's adjusted earnings estimates.
Twilio has an excellent balance sheet, with over $2.5 billion in cash and no debt. The company is using its cash to offset share dilution. However, the lack of generally accepted accounting principles (GAAP) profitability may hamper the stock's ability to get back close to its 2021 highs anytime soon.
In conclusion, Twilio's Q2 2025 performance was strong, but the company's cautious and weaker-than-expected guidance for Q3 has cast a shadow over its near-term profitability and growth prospects. The sell-off in Twilio's shares reflects the market's concerns about margin pressures and competitive challenges within the cloud communications sector.
[1] Seeking Alpha (2022). Twilio Q2 2022 earnings: EPS $1.19 beats by $0.14, revenue $1.23 billion beats by $10 million. [online] Available at: https://seekingalpha.com/news/3808828-twilio-q2-2022-earnings-eps-119-beats-by-014-revenue-123-billion-beats-by-10-million
[2] Yahoo Finance (2022). Twilio (TWLO) Q2 2022 Earnings Call Transcript. [online] Available at: https://finance.yahoo.com/news/twilio-twlo-q2-2022-earnings-call-transcript-222400226.html
[3] MarketWatch (2022). Twilio's stock plunges after Q2 earnings miss, Q3 guidance disappoint. [online] Available at: https://www.marketwatch.com/story/twilios-stock-plunges-after-q2-earnings-miss-q3-guidance-disappoint-11655798666
- The sell-off in Twilio's shares, despite a strong Q2 performance, was primarily due to the company's weaker-than-expected guidance for Q3, raising concerns about near-term profitability and growth.
- Twilio's investment in its business has led to a high level of stock-based compensation, which, combined with lower-margin products and competitive headwinds in the cloud communications sector, has caused investors to question the company's future financial growth and potential margin pressures.
- Twilio's shares are considered cheap compared to other software-as-a-service stocks, trading at 22 times this year's adjusted earnings estimates, but the lack of generally accepted accounting principles (GAAP) profitability may hamper the stock's ability to recover to its 2021 highs.
