Twilio Inc. TWLO has endured a rough patch, sliding 10% over the past month, significantly underperforming the S&P 500, which fell 6.9% during the same period. The decline stems from both broader market weakness and company-specific challenges, particularly disappointing earnings guidance.

Twilio One-Month Price Return Performance

Image Source: Zacks Investment Research

Despite these short-term headwinds, Twilio’s long-term growth prospects, backed by its dominance in the customer engagement space, artificial intelligence (AI)-driven innovations and shareholder-friendly policies, make it a worthwhile hold for now.

Twilio’s Earnings Miss and Weak Guidance Spook Investors

Twilio’s fourth-quarter 2024 results fell slightly short of expectations, contributing to the recent stock sell-off. On Feb. 13, the company reported non-GAAP EPS of $1.00, missing the Zacks Consensus Estimate of $1.02, while revenues of $1.19 billion narrowly surpassed forecasts.

Twilio Inc. Price, Consensus and EPS Surprise

Twilio Inc. price-consensus-eps-surprise-chart | Twilio Inc. Quote

However, it was the company’s disappointing first-quarter 2025 guidance that alarmed investors. Management projected EPS in the band of 88-93 cents, falling below the consensus mark of 95 cents. Moreover, the revenue forecast of $1.13-$1.14 billion implied a sequential decline, sparking concerns about slowing demand and profitability pressures.

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While these short-term results are concerning, they do not undermine Twilio’s strong long-term fundamentals. The company’s continued investments in AI, customer engagement solutions and a loyal customer base reinforce its long-term growth potential, making the stock worth holding through the current volatility.

Twilio Dominates the Customer Engagement Market

Twilio maintains its leadership position in customer engagement by enabling real-time, personalized interactions for businesses globally. Its AI-powered solutions play a key role in driving efficiency and customer satisfaction. Twilio Verify and Voice Intelligence leverage AI to automate and optimize customer interactions, delivering better security and valuable insights.

Twilio Segment, its rapidly growing customer data platform, is another standout growth driver. By unifying customer data from multiple touchpoints, Segment empowers businesses to run highly targeted, data-driven marketing campaigns, boosting retention and sales.

As enterprises increasingly adopt AI to streamline operations and enhance customer experiences, Twilio’s data-rich, AI-driven platforms will continue to benefit from this trend. The company’s strategic positioning in the growing customer engagement market makes it a strong long-term hold despite near-term challenges.

Twilio’s Competitive Edge Through API-First Strategy

Twilio’s application programming interface (API)-first approach differentiates it from larger tech rivals such as Cisco CSCO, Microsoft MSFT and Amazon AMZN. While these giants offer standardized, bundled solutions, Twilio’s customizable APIs enable businesses to create tailor-made communication experiences, giving them a competitive advantage.

This flexibility appeals to a wide range of customers, from startups to large enterprises, enhancing customer stickiness and loyalty. Furthermore, Twilio’s global reach across 180+ countries extends its market presence beyond many regional competitors. Its deep integration across messaging, voice, email and video makes it the go-to provider for comprehensive customer engagement solutions, strengthening its long-term growth prospects.

Twilio’s Financial Resilience and Shareholder Returns

Despite the earnings miss, Twilio’s financial performance remains strong. In the fourth quarter, the company delivered 16.3% year-over-year EPS growth, with revenues climbing 11%, demonstrating its resilient business model.

Twilio’s dollar-based net expansion rate improved to 106%, up from 105% in the previous quarter and 102% year over year, reflecting strong customer retention and upselling momentum. The company’s active customer accounts grew to more than 325,000 as of Dec. 31, 2024 compared to 320,000 in the previous quarter, highlighting its continued customer acquisition.

Twilio’s balance sheet remains solid, with $2.38 billion in cash, cash equivalents and short-term investments as of Dec. 31, 2024. Its free cash flow generation of $657.5 million in 2024, along with $716.2 million in operating cash flow, demonstrates its financial stability and ability to fund growth initiatives.

TWLO’s shareholder returns strengthen its appeal. In 2024, Twilio repurchased $2.33 billion worth of shares, completing its $3 billion buyback program. In January 2025, the board authorized a new $2 billion share repurchase plan, effective until Dec. 31, 2027, reflecting management’s confidence in the company’s long-term value.

Valuation Makes Twilio a Compelling Hold

Following the recent sell-off, Twilio’s valuation has become more attractive. The stock currently trades at a forward P/S multiple of 3.22X, below the Zacks Internet - Software industry average of 4.94X. This relative discount suggests that much of the short-term weakness is already priced in, making the stock a compelling hold for patient investors.

Twilio Forward 12-Month P/S Ratio

Image Source: Zacks Investment Research

Conclusion: Hold TWLO Stock for Now

While Twilio faces near-term challenges from disappointing guidance and broader tech sector weakness, its long-term growth drivers remain intact. The company’s leadership in customer engagement, expanding AI capabilities and financial resilience position it for sustainable growth.

Given its reasonable valuation and strategic positioning, investors should hold Twilio stock for now, as the company is well-positioned to capitalize on long-term trends in customer engagement and AI adoption despite short-term market pressures.

Currently, Twilio carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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