Twilio Inc (NYSE:TWLO) is set to report its Q2 earnings on Aug 7. Will an earnings beat lift TWLO stock?
Communications Platform as a Service provider Twilio Inc (NYSE:TWLO) is scheduled to report its second quarter fiscal 2017 earnings results on August 7th, after the closing bell. Shares of the San Francisco, California-based in-app communications specialist have done well to recover from the massive plunge post its first quarter earnings, gaining more than 15% since then. After the announcement that it would be losing its biggest customer Uber, investor sentiment has taken a big hit. The announcement had also contributed greatly to make Twilio stock a heavily shorted stock, with shorted shares forming a massive 34% of its total float. The upcoming earnings report could be the much-needed catalyst to boost investor sentiment. TWLO stock is well known for wild swings. With much to prove about its growth story, is TWLO stock a good buy ahead of its Q2 2017 earnings?
Twilio Q2 Earnings Analyst Estimates.
Wall Street consensus expects Twilio to report a Non-GAAP loss per share of 11 cents on revenue of $86.24 million. The consensus implies a 33.7% top line growth and a 3 cents earnings decline over the year ago quarter. The company guided base revenue to be in the range of $81.5 million to $82.5 million and total revenue in the range of 85.5 million to 87.5 million. On the earnings front, the cloud platform services provider gave a guidance for non-GAAP loss from operations to be $10.5 million to $9.5 million which puts non-GAAP net loss per share at $0.11 to $0.10, based on 91 million of weighted average shares outstanding. Twilio had also reduced its full year guidance on account of a change in relationship with their biggest customer Uber.
Commenting on the decline in revenue from Uber sequentially, CFO Lee Kirkpatrick stated, "Out of this quarter we’ve been forecasting modest growth for Uber in 2017 definitely not at the same rates as we experienced in 2016. We’ve now taken our Uber forecast and assumptions down significantly. Currently we’re modeling for the contribution to our revenue to decline both sequentially in Q2 and on a year-over-year basis in 2017 as a whole." The company's revenue growth would be closely watched in Q2, after a sequential decline in revenue from Uber. If revenue growth fails to impress investors, the share price may take a further hit.
Twilio Earnings History and Q2 Earnings Whisper.
Twilio has a short, but good earnings history, delivering an earnings surprise in all of the 3 reported quarters since its IPO. On the revenue front as well, the company has beaten consensus estimates in every quarter. The company also has a good record of trumping the management guidance, having beaten the high end of management guidance in all the reported quarters. Based on the recent earnings history as well as the management guidance, Twilio should deliver yet another earnings beat with revenue coming in at the higher end of the management guidance. However, one should note that the management has given a reduced guidance and the decline in Uber revenue could play spoilsport.
Twilio's Q2 earnings whisper number hints at a narrow beat. The current whisper number expects Twilio to report a loss per share of 10 cents. The whisper number implies only a 1 cent beat, the narrowest beat margin since Twilio's IPO.
Technicals and Short Interest.
TWLO stock presently enjoys strong support at its 50-day and 100-day Simple Moving Averages (SMAs). The stock has lost momentum going into earnings and has been in a downtrend since hitting a 3 month high on July 26. Twilio shares are down more than 8% since July 26. The stock has the next resistance at its short term 20-day SMA and long-term 200-day SMA. A strong earnings could see bullish breakouts about the resistance levels.
The stock could also benefit from a short squeeze. As of the last reporting period, short interest as a percentage of total float stood at 34%. The days to cover is very high at 16 days. A strong Q2 earnings performance and a sharp rise in share price could lead to some heavy short covering, contributing to a further rise in share price. Given the high short interest and the stock's history of big post earning moves, Twilio is a high risk/high reward bet going into earnings.
Twilio would need a much strong earnings result to boost investor sentiment. While the current earnings whisper number implies that an earnings beat is on the cards, just an earnings beat will not be enough to propel Twilio stock higher. The company needs to show that revenue growth is still strong even after the sequential decline in revenue from its biggest customer Uber. Customer account additions with contracts of more than 12 months would be crucial to send a right long-term message. Hence, apart from the EPS/top line numbers, investors should keep a close watch on the guidance for the rest of the year and contribution from variable customer accounts. TWLO stock trades at 8.5 times sales, which is higher than the industry average of 5.6 for application software makers. Valuation wise, the stock is very expensive, but it's a high growth stock. Yet it has still a lot to prove. Twilio stock is a high risk/ high reward play ahead of earnings.
Looking for fundamentally strong tech stocks? Check out Amigobulls' top stock picks from the tech sector, which have beaten the NASDAQ by over 136%. Interested in automotive stock? Then, we also have our top picks from the auto sector, which have beaten the S&P 500 by 239%. If you're a trader though, you should check out our daily trading ideas section for daily, free updates on the latest crossovers and other popular technical signals.