Twilio Inc. TWLO, a leading provider of cloud communications Platform-as-a-Service (PAAS) in the United States and internationally, will report fourth-quarter 2024 earnings results on Feb. 13, after the closing bell. The stock currently carries a Zacks Rank #1 (Strong Buy) and has an Earnings ESP of +3.28%. You can see the complete list of today’s Zacks #1 Rank stocks here.

Our research shows that for stocks with the combination of a Zacks Rank #3 (Hold) or better (Rank #1 or 2) and a positive Earnings ESP, the chance of an earnings beat is as high as 70%. These stocks are anticipated to appreciate after their earnings release. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Find the latest earnings estimates and surprises on Zacks Earnings Calendar.

Factors to Consider

Twilio has been benefiting from accelerated digital transformations amid a growing hybrid working trend. TWLO’s selective acquisitions and strategic investments in businesses and technologies have been enhancing its product portfolio and fortifying its global presence. 

The company has been gaining traction not only from the solid expansion of its existing clientele but also from first-time deals with new customers due to its firm focus on introducing products and a go-to-market sales strategy. TWLO’s ongoing cost-saving initiatives have been driving profits and margins, which is praiseworthy.

Twilio has been witnessing tremendous demand for its programmable voice and messaging products, which is favoring its top-line performance. Furthermore, TWLO’s consistent efforts in developing innovative use-case products will continue to boost its revenues in the long run. A sturdy uptick in TWLO’s Engagement Cloud offerings as well as email with the inclusion of SendGrid is a key catalyst.

The company has been striving to gain more and more enterprise customers, as they bring in more stable revenues for the long term. TWLO mainly generates sales through online model, but in order to grab more market share, it has increased its investment on building traditional sales team. Furthermore, TWLO rolled out – Enterprise Plan – for enterprise customers with more compliance, administrative and security features.

The chart below shows the price performance of TWLO in the past year.

Image Source: Zacks Investment Research

Major Long-Term Catalyst: Extensive Application of AI

Twilio is focusing on generative artificial intelligence (AI) offerings to tap the growing opportunities in the space. In this regard, TWLO launched Customer AI technology in June 2023, which powerfully combines customer engagement platform data, generative and predictive AI, and large language models (LLMs) to unlock stronger customer relationships for brands. 

TWLO is integrating generative AI capabilities across its platform and every customer touch point. The company believes that by training LLMs for customers with their data inside its Segment customer data platform, Twilio will be able to help customers enter the AI race multiple steps ahead of their peers. 

The company has also partnered with Alphabet Inc. GOOGL for Google Cloud to integrate generative AI into the Twilio Flex customer engagement platform. Twilio’s initiative to integrate generative and predictive AI technology across its platform will likely boost its revenue growth over the long-run. 

In August 2023, Twilio announced that it will enable companies to create personalized, customer-aware experiences powered by OpenAI. Through this integration, Twilio customers will be able to use OpenAI’s GPT-4 model to power new generative capabilities in Twilio Engage, its multichannel marketing solution built on the Segment Customer Data Platform.

Solid Earnings Estimate Revisions for TWLO Stock

For fourth-quarter 2024, the Zacks Consensus Estimate currently shows revenues of $1.17 billion, suggesting an improvement of 9% year over year and earnings per share (EPS) of $1.02, indicating an increase of 18.6% year over year. 

The Zacks Consensus Estimate for fourth-quarter 2024 earnings has improved by 2% over the past 30 days. Twilio reported positive earnings surprises in the last four reported quarters with an average beat of 31%.

At present, the Zacks Consensus Estimate indicates a year-over-year increase of 6.8% and 50.6%, respectively, for revenues and EPS in 2024. Even after this strong projection, the current Zacks Consensus Estimate for 2025 revenues and EPS reflects an upside of 7.6% and 17.6%, respectively. 

The Zacks Consensus Estimate for 2025 earnings has improved 0.9% over the past 60 days. TWLO currently has a long-term (3-5 years) EPS growth rate of 28.7%, well above the S&P 500’s long-term EPS growth rate of 12.4%.

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Investment Thesis for TWLO Shares

The stock price of Twilio has jumped 33.5% year to date. Despite the rally, the stock has more upside left as its favorable Zacks Rank and a possible earnings beat are expected to drive prices northward in the near-term. 

Moreover, extensive application of generative and predictive AI will enable TWLO to differentiate its products in a competitive scenario. Additionally, Twilio is a cash-rich company with a strong balance sheet. This will not only guarantee protection but is also likely to reward shareholders from its heavy cash registers. 

As of Sept. 30, 2024, Twilio had cash and marketable securities of $2.7 billion, while the long-term debt totaled $990 million. Since it has net cash available on its balance sheet, the existing cash can be used for pursuing strategic acquisitions, investing in growth initiatives and rewarding shareholders.

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