The One Flaw In Twilio's Solid Q3

Twilio Inc TWLO reported third-quarter results Tuesday in which the company lost 8 cents per share on revenue of $100.5 million.

Wall Street analysts were expecting the company to lose 8 cents per share — but on revenue of $92.55 million. Twilio guided its fourth quarter and full-year revenue above Wall Street's expectations.

The Analyst

KeyBanc Capital Markets' Brent Bracelin.

The Rating

Bracelin maintains a Sector Weight rating on Twilio's stock with no assigned price target. (See Bracelin's track record here.) 

The Thesis

Twilio reported a "solid" earnings report in which:

• Revenue rose 40.6 percent year-over-year.
• Base revenue (excluding Uber) rose 63 percent.
• New customer revenue rose 17 percent from the prior quarter.
• Total customer count rose 35.6 percent to 46,731.
• Average revenue per user rose 18 percent to $8,000.

The company reported a notable client win with Microsoft Corporation MSFT for authentication and AWS for Pinpoint.

But there was one flaw in Twilio's earnings report, Bracelin said: despite "robust" demand trends, the effect foreign exchange and Uber pricing trends had on the gross margin was a surprise. Specifically, gross margin dipped from 58 percent in the prior quarter to 53 percent. Nevertheless, investors should be "encouraged" by the company's revenue trends, which are expected to "drive a growth recovery" after the first quarter of fiscal 2018, Bracelin said. 

Price Action

Shares of Twilio were trading higher by nearly 5 percent during Thursday's pre-market trading session.

Related Links:

Twilio Q3 Preview: 7 Recent Rating And Price Target Changes

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