Shares of cloud-communications platform Twilio (NYSE: TWLO) fell over 30% on Friday after the company announced its Q3 results. Twilio reported revenue of $983 million and an adjusted loss of $0.27 per share. Wall Street forecasted Twilio to report revenue of $972.2 million and an adjusted loss of $0.36 per share. In the year-ago period, Twilio’s revenue and earnings per share stood at $364.5 and $0.01, respectively.

Twilio forecasted sales between $995 million and $1 billion in Q4, lower than estimates of $1.07 billion. It also expects losses to range between $0.11 per share and $0.06 per share, compared to estimates of a loss of $0.12 per share.

While Twilio failed to meet earnings estimates in Q3 and provided a less-than-impressive outlook for Q4, the sell-off was driven after the company explained its revenue growth target of 30% is not achievable going forward.

The company stated, “Turning to guidance, weU+02019ve incorporated the impact from the dynamic macro environment into our guidance for the fourth quarter, and weU+02019re initiating revenue guidance of $995 million to $1.005 billion, for year-over-year growth of 18%-19% for both reported and organic revenue.”

Similar to its software peers, Twilio’s business is also impacted by a challenging macro environment leading to tepid guidance for Q4, which accelerated the sell-off in TWLO stock. 

Right now, shares of Twilio are down a whopping 90% from all-time highs, burning significant investor wealth in the process.

 

Is TWLO stock a buy or sell right now?

Twilio’s platforms allow developers to build, scale and operate customer engagement within software applications. This customer engagement platform also offers a set of application programming interfaces to handle an advanced level of communication logic and improve engagement rates.

Twilio suite of products and services allowed the company to end the quarter with 280,000 active customer accounts, up from 250,000 customer accounts in the year-ago period.

Valued at a market cap of $8.4 billion, Twilio is a beaten-down tech stock trading at a depressed multiple. Analysts expect the company to increase sales by 34% to $3.81 billion in 2022 and by 17.6% to $4.48 billion in 2023. Further, its losses per share are forecast to widen to $0.49 in 2022 from $0.25 per share in 2021.

Twilio stock is priced at just over 2.3 times forward sales which is not too steep. However, it remains unprofitable, which might concern investors despite the company’s cash balance of $4.21 billion at the end of Q3. Twilio’s GAAP losses widened to over $480 million in Q3, compared to a loss of $224 million in the prior-year period.

 

TWLO stock is expected to remain volatile

Twilio’s widening losses and decelerating revenue growth have sounded the alarm bells for investors. The company’s sales surged from $277 million in 2016 to $2.84 billion in 2021, indicating a compound annual growth rate of 59% in this period.

On the flip side, Twilio is well positioned to stage a strong recovery if it can improve profit margins and expand its customer base, which already includes Airbnb (NYSE: ABNB), Lyft (NASDAQ: LYFT), and MercadoLibre (NASDAQ: MELI).

Another major reason for the sell-off is Twilio’s dollar-based net retention rate which stands at 122%. It means existing customers have increased spending by 22% on the Twilio platform in the last 12 months. But in the last year, its net retention rate stood much higher at 131%.

Investors can expect price target estimates for TWLO stock to move lower in the next month on the back of its revenue growth forecast. Prior to its earnings, TWLO stock had a price target of $86, which is 90% above its current price target.

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