Twilio Earnings: Good Performance; Profitability Tracking Ahead and Revenue Acceleration Looming

Narrow-moat Twilio reported blowout second-quarter results with both revenue and profitability well-ahead of our expectations. Guidance was mixed with immediate near-term pressure arising from a change to 10DLC messaging rules, while non-GAAP operating profit is tracking ahead of management’s prior outlook. We see green shoots with continued maturation of the specialized salesforce for data and applications, where management characterized the pipeline as robust and bookings showing good momentum. We are also encouraged by stabilization in messaging volumes. Recent restructuring actions are clearly bearing fruit, as profitability was strong, and large deals are still being won. Based on results and guidance, we raised our profitability estimates and are therefore raising our fair value estimate to $64 per share, from $56 previously. We view shares as fairly valued at present levels.