How Attractive Is Twilio Inc (TWLO) Stock After Its Post Earnings Pop?

Is Twilio Inc (NYSE:TWLO) stock an attractive proposition after yesterdays near 10% pop?

How Attractive Is Twilio Inc (TWLO) Stock After Its Post Earnings Pop
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Shares of in-app communications specialist Twilio Inc (NYSE:TWLO) saw a near 10% pop in yesterday's trade driven by strong second quarter earnings results. The cloud communications company reported robust revenue growth even after losing some business from its biggest customer Uber. The Jeff Lawson led company also increased full year guidance targets. Twilio co-founder and CEO Jeff Lawson had helped Amazon (NASDAQ:AMZN) build Amazon Web Services. Amazon still has close ties with the company. Twilio bulls, who have had a bad year in 2017, have some hope now. TWLO stock faces a critical resistance at the $35 levels, which it has failed to breach in 2017. Now, the important question is whether Twilio stock is an attractive investment at these levels, Let's take a closer look.

Earnings Recap.

Last quarter, Twilio announced that Uber, its biggest customer, would be curtailing their dependence on Twilio in a staggered manner. However, the cloud-based communications expert still managed to post a 49% YoY revenue growth with total revenue coming at $95.9 million. Analysts were expecting a revenue of $86.24 million, implying a 33.7% year-on-year top line growth. Twilio also posted a much narrow adjusted loss per share of 5 cents compared to analyst estimates of 11 cents per share. The company had reported a Non-GAAP loss per share of 14 cents in the year ago quarter. Further, the base revenue measure which excludes revenue from big customer accounts (like WhatsApp) that didn't sign 12-month minimum revenue commitment contracts, increased 55% from the second quarter of 2016, to $87.6 million. As of Q2, Twilio had 43,431 active customer accounts, compared to 30,780 in Q2 2016.

Twilio stock faces strong resistance ahead.

TWLO stock closed at $33.58 after yesterday's close. Now, a major question before investors is whether it can break the strong resistance at the $35 levels. Twilio shares have never closed above $35 in 2017. The recent pop in share price has lead to multiple breakouts, which does boost the chances of breaking the resistance. The stock broke above its 20-day and 200-day Simple Moving Averages (SMA) on strong volumes yesterday. This is often considered as a bullish trend. Further, Twilio stock also made a bullish Moving Average Convergence Divergence (MACD) crossover. In a bullish move, the MACD line cut the signal line from below. All the above signals hint that the resistance could well be broken. However, the stock is known for wild swings which raise some concern about whether the resistance could be broken and the momentum to be sustained. After the surge yesterday, the stock is down more than 1% in the after hours, hinting at the highly volatile nature of the stock.

Can Twilio repeat the Q2 performance?

Twilio issued a conservative guidance for Q3. The company expects the total revenue to be in the range of  $91-$93 million, a 28% YoY increase on the midpoint of guidance. The adjusted loss per share is expected to narrow down from 13 cents in Q3 2016 to 7 to 8 cents per share. The guidance could also mean that the company is just issuing lower numbers to deliver an earning beat. Further, CFO Lee Kirkpatrick, in the earnings call stated, "Embedded in our third quarter guidance is a full quarter of impact of these changes. This will translate into a larger sequential decline in revenue from Uber in Q3 than what occurred in the second quarter." This could be much worse than initially estimated, since in Q2, Uber accounted for 9% of the total revenue. A drastic fall in Uber revenues could be fatal.

The big long-term question for Twilio is how it will lift per-customer revenue and increase its enterprise footprint. Presently, the revenue growth is driven by the addition of multiple small user accounts and enterprise is very small part of their mix today. One more concern for Twilio is that it generates the bulk of its revenue from its mature products, SMS and voice, and the number of 20 odd new products launched at Signal, its annual event, need at least 12 to 24-months to make significant contributions to revenue. The relatively long cycle for a new product to make contributions slightly undermines its explosive growth.

 Summary.

Twilio stock can also make some solid gains on account of a Short Squeeze. Short interest stands at a high 34% of float. However, investors should wait for the latest short interest numbers to be released today to get a better idea of the short interest situation. Twilio stock still remains a risky bet on account of the reasons discussed above. The stock is not attractive at this levels and investors should keep an eye on the $35 resistance. Twilio stock has received multiple price target hikes by analysts after its stellar Q2 earnings. Canaccord analyst Richard Davis who also raised his price target to $38 said: "we expect TWLO to trade in a broad range of about $30-40, with an upward bias over the next few months as investors conclude that 2018 estimates are a floor level with a bit of upside."  

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Sreekanth Anasa Sreekanth Anasa   on Amigobulls :

Neither Amigobulls, nor any members of its staff hold positions in any of the stocks discussed in this post. The author may not be a certified/registered investment advisor, and the opinions expressed should not be treated as investment advice.

Buying and selling of securities carries the risk of monetary losses.Readers/Viewers are advised to carry out their own due diligence and consult their investment advisors before making any investment decisions.

Neither Amigobulls, nor the author have any business relationship with any of the companies covered in this post.

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