What Happened?

Shares of cloud communications infrastructure company Twilio (NYSE:TWLO) fell 16.7% in the morning session after the company reported underwhelming fourth quarter results. Its EPS guidance for next quarter missed significantly and its revenue guidance for next quarter was in line with Wall Street's estimates. Notably, the guidance implied a sequential growth decline and a deceleration that likely spooked investors interested in its recent resurgence. 

On the other hand, Twilio grew its customers this quarter, and its revenue outperformed Wall Street's estimates. However, the market's gaze seems to be on the weak growth outlook. Overall, this quarter could have been better.

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What The Market Is Telling Us

Twilio’s shares are somewhat volatile and have had 10 moves greater than 5% over the last year. But moves this big are rare even for Twilio and indicate this news significantly impacted the market’s perception of the business. 

The previous big move we wrote about was 21 days ago when the stock gained 22.8% on the news that the company shared impressive financial forecasts during its 2025 Investor Day event, unveiling clearer details about its artificial intelligence capabilities. Twilio expects low double-digit sales growth when it reports earnings for Q4'2024, a notable improvement from earlier guidance of high single-digit growth. 

On a GAAP basis, operating income is expected to swing into positive territory, a rare achievement for the company, building on recent quarters where it nearly broke even. In the long term, Twilio expects to achieve an adjusted operating margin as high as 22% by 2027 (ahead of Wall Street's estimates), which could drive $3 billion in free cash flow over the next three years. The profit forecast is partly based on management's conviction that the business can continue to deliver double-digit sales growth, given the abundant AI opportunities. 

In a further move to return the generated value to shareholders, management announced a $2 billion share buyback plan. 

Following the event, Baird analyst William Power upgraded the stock's rating from Hold to Buy, expressing increased optimism ahead of TWLO's Q4 2024 earnings results. Power highlighted the AI opportunity, adding, "Notably, 9,000 AI companies and 90% of Forbes 50 AI startups are building on TWLO as a customer engagement layer, and AI related companies spent $260 million on Twilio in the last 12 months." The analyst also raised TWLO's price target from $116 to $160, translating to a potential 40% upside.

Twilio is up 16.3% since the beginning of the year, but at $126.86 per share, it is still trading 14.5% below its 52-week high of $148.35 from January 2025. Investors who bought $1,000 worth of Twilio’s shares 5 years ago would now be looking at an investment worth $993.11.

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