It has been about a month since the last earnings report for Twilio (TWLO). Shares have added about 27.6% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Twilio due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Twilio Q3 Earnings and Revenues Beat Estimates

Twilio reported third-quarter 2024 non-GAAP earnings of $1.02 per share, which surpassed the Zacks Consensus Estimate of 87 cents and came above management’s guidance of 81-86 cents.

The bottom line also witnessed a robust improvement from the year-ago quarter’s earnings of 58 cents. The strong year-over-year growth in earnings was driven by increased revenues and cost discipline.

The cloud-based communications platform-as-a-service provider registered revenues of $1.13 billion, which surpassed the Zacks Consensus Estimate of $1.09 billion and came ahead of management’s guidance of $1.085-$1.095 billion. The company’s third-quarter revenues improved 10% year over year.

On its earnings conference call, Twilio stated that the third-quarter top-line performance was driven by growth in communications revenues, offset by the unsetting of the software component of the Zipwhip business. This resulted in a 90-basis point (bps) headwind to the company’s third-quarter organic revenue growth.

Twilio’s Revenues in Details

Segment-wise, revenues from the Communications division came in at $1.06 billion, up 10% year over year. The Segment division’s sales remained flat year over year at $73.4 million.

Twilio’s dollar-based net expansion rate was 105% in the reported quarter, up from the previous quarter’s 102% and the year-ago quarter’s 101%. The company’s third-quarter dollar-based net expansion rates for the Communications and Segment divisions were 106% and 91%, respectively.

Active customer accounts increased to more than 320,000 as of Sept. 30 from 316,000 at the end of the second quarter of 2024. The figure was 306,000 as of Sept. 30, 2023. As of Sept. 30, 2024, Communications and Segment active customer accounts were more than 313,000 and 7,500, respectively.

Operating Results

The non-GAAP gross profit increased 8.6% year over year to $600 million. The non-GAAP gross margin contracted 60 bps year over year to 52.9%. The third-quarter non-GAAP gross margin for the Communications and Segment divisions came in at 51.8% and 69.8%, respectively.

The non-GAAP operating income jumped 33.7% year over year to $182.4 million. The non-GAAP operating margin of 16.1% for the third quarter expended 290 bps on a year-over-year basis.

General & administrative (G&A) expenses on a non-GAAP basis decreased to $74.8 million from $79.6 million in the year-ago quarter. G&A expenses accounted for 6.6% of quarterly revenues, down from 7.7% in the year-ago quarter. Research & development (R&D) expenditures on a non-GAAP basis increased 20.2% year over year to $174.8 million. R&D expenses accounted for 15.4% of third-quarter revenues, up from 14.1% in the year-ago quarter.

Non-GAAP sales & marketing costs declined 12.1% to $168 million. The same represented 14.8% of third-quarter revenues, lower than 18.5% in the year-ago quarter.

Balance Sheet

The company exited the September quarter with cash and cash equivalents and short-term marketable securities of $2.70 billion, down from $3.12 billion at the end of the second quarter. As of Sept. 30, 2024, TWLO’s long-term debt was $990.2 million.

During the third quarter, Twilio generated operating cash flow of $204.3 million and a free cash flow of $189.1 million. In the first three quarters of 2024, it generated an operating cash flow of $607.8 million.

Twilio repurchased stocks worth $2.7 billion in total since the beginning of its $3 billion share repurchase program initiated in February 2023.

Guidance Update

Twilio updated its guidance for full-year 2024. The company now anticipates organic revenue growth in the range of 7.5-8% in 2024 compared with the previous guidance of 6-7%. Non-GAAP income from operations is now projected in the range of $700-$710 million, up from the previous guidance of $650-$675 million.

Twilio also initiated guidance for the fourth quarter. For the quarter ending Dec. 31, 2024, TWLO anticipates revenues between $1.15 billion and $1.16 billion, which indicates a year-over-year increase of 7-8% on a reported as well as an organic basis.

Twilio projects non-GAAP income from operations in the range of $185-$195 million. It forecasts non-GAAP earnings in the range of 95 cents to $1 per share.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates revision.

The consensus estimate has shifted 134.29% due to these changes.

VGM Scores

At this time, Twilio has a strong Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. However, the stock was allocated a grade of F on the value side, putting it in the lowest quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Twilio has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.

Performance of an Industry Player

Twilio belongs to the Zacks Internet - Software industry. Another stock from the same industry, F5 Networks (FFIV), has gained 6.9% over the past month. More than a month has passed since the company reported results for the quarter ended September 2024.

F5 reported revenues of $746.67 million in the last reported quarter, representing a year-over-year change of +5.6%. EPS of $3.67 for the same period compares with $3.50 a year ago.

F5 is expected to post earnings of $3.37 per share for the current quarter, representing a year-over-year change of -1.8%. Over the last 30 days, the Zacks Consensus Estimate has changed +0.1%.

F5 has a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of C.

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