Twilio Gears Up to Report Q1 Earnings: How to Play the Stock?

Twilio Inc. TWLO is scheduled to report first-quarter 2025 earnings on May 1, after market close.

Twilio anticipates non-GAAP earnings per share between 88 cents and 93 cents. The consensus mark for first-quarter earnings has remained unchanged at 92 cents per share over the past 60 days, suggesting an improvement of 15% from the year-ago quarter’s 80 cents. (Find the latest EPS estimates and surprises on Zacks Earnings Calendar.)

For the first quarter, the company anticipates revenues between $1.13 billion and $1.14 billion. The Zacks Consensus Estimate for revenues is pegged at $1.14 billion, indicating an improvement of 8.5% from the year-ago quarter’s revenues of $1.05 billion.

TWLO’s earnings beat the Zacks Consensus Estimate thrice in the trailing four quarters, while missing on one occasion, the average surprise being 17.8%.

Earnings Whispers for Twilio

Our proven model does not conclusively predict an earnings beat for Twilio this time. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat, which is not the case here. You can see the complete list of today’s Zacks #1 Rank stocks here.

Twilio has an Earnings ESP of 0.00% and a Zacks Rank #4 (Sell) at present. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.

Factors Likely to Influence TWLO’s Q1 Results

Twilio’s first-quarter results are likely to reflect gains from sustained digital transformation efforts as enterprises continue to reconfigure their setup for a hybrid operational environment. TWLO’s initiatives to expand the network with independent software vendors and its global partners are likely to have favored the first-quarter performance.

New product launches, including rich communication services and artificial intelligence (AI) enhancements, particularly with the integration of OpenAI’s Realtime API into Twilio’s platform, are expected to positively impact the quarter's results. Previous enhancements of Twilio’s Segment and Flex platforms with new products like Agent Colpilot, Linked Audiences and the Segment Data Graph are likely to have attracted more customers in the fourth quarter as well.

In the last reported quarter, Twilio added around 5,000 new clients, taking the total active customer count to 325,000 as of Dec. 31, 2024. The trend in the growth of the customer base is likely to have continued in the to-be-reported quarter.

Solutions like Twilio Conversations, SendGrid Ads and SendGrid’s Email Validation application programming interface are likely to have contributed to the first-quarter performance. Moreover, the company’s integration of AI in several communication and segment products is likely to have favored its first-quarter 2025 performance.

TWLO’s bottom line is likely to have benefited from its cost-saving initiatives, which include workforce reduction and the closure of several offices. The company ended the fourth quarter of 2024 with 5,535 employees, down from the year-ago quarter’s 5,867 personnel.

However, Twilio’s first-quarter 2025 results are likely to be affected by the discontinuation of a particular software component Zipwhip business. Moreover, the ongoing macroeconomic challenges are likely to have hurt TWLO’s top line in the to-be-reported quarter. Enterprises are postponing their large IT spending plans amid the still-high interest rates and protracted inflationary conditions.

TWLO Price Performance & Stock Valuation

In the past year, shares of Twilio have rallied 58.3%, outperforming the Zacks Internet – Software industry’s rise of 21.9%. TWLO stock has also outperformed its industry peers, including Affirm Holdings AFRM, Paycom Software PAYC and Five9 FIVN. Over the past year, shares of Affirm Holdings and Paycom Software have soared 57.2% and 22.7%, respectively, while Five9 stock has plunged 56.5%.

One-Year Price Return Performance

Now, let’s look at the value that Twilio offers to its investors at the current levels. Currently, TWLO is trading at a discount, with a forward 12-month price-to-sales (P/S) of 3.01X compared with the industry’s 4.88X.

Compared with industry peers, Twilio trades at a lower valuation than Affirm Holdings and Paycom Software, while it has a higher P/S multiple than Five9’s. At present, Affirm Holdings, Paycom Software and Five9 have a P/S multiple of 4.21X, 6.33X and 1.64X, respectively.

Investment Consideration for TWLO

Twilio is a leader in the customer engagement and communications space, offering programmable communications cloud software that allows developers to embed voice, messaging, video and authentication capabilities into their apps at a very low cost. TWLO’s APIs are used by the world’s most renowned companies like Netflix, Airbnb, Lyft, Zendesk, Uber, WhatsApp and DoorDash.

Twilio’s developer-friendly platform and extensive API ecosystem have made it a preferred choice for companies looking to build custom communication solutions. Its ability to offer highly customizable communication tools, alongside its extensive global reach in more than 180 countries, gives it a competitive edge over its peers.

Nonetheless, Twilio’s near-term prospects might be hurt by softening IT spending. Enterprises are postponing their large IT spending plans due to a weakening global economy amid ongoing macroeconomic and geopolitical issues.

Conclusion: Sell TWLO Stock

Twilio’s fundamentals remain solid, and its focus on AI-driven customer engagement solutions positions it for long-term growth. However, near-term headwinds stemming from macroeconomic uncertainties warrant a cautious approach. Considering the short-term headwinds, it is prudent to sell the stock for now and wait until the upcoming quarterly results to get clarity on further investment decision-making.

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

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