Twilio's Strong Earnings Capture Investors' Attention. Time to Buy the Stock?

Twilio (NYSE: TWLO) is an internet services and infrastructure company based in San Francisco, California. It primarily provides users with a cloud communication platform for a number of industries and varying business sizes.

Twilio has been trading fairly flat for the last couple of years due to prolonged profitability issues since its initial public offering (IPO) in June 2016. In late 2023 and early 2024, in an effort to position Twilio for a stronger future, a company restructure occurred, which included cuts to its workforce, the implementation of cost-cutting measures, and the appointment of a new CEO.

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Twilio is one of the largest operating communications platforms as a service (CPaaS), and its operating revenue is expected to grow by over sevenfold from 2023 to 2031.

Generative artificial intelligence (AI) technology has continued to be better utilized among its existing products. Twilio's focus on improving its customer engagement platform has led to increased investor attention.

Despite its struggles with overall profitability since the company started publicly trading, Twilio offers considerable upside potential, particularly following its strong earnings report for the third quarter.

Stand-out factors for Twilio's business

Twilio has recently released a number of new products that have helped fuel the company's growth. Integration with OpenAI's Realtime application programming interface (API) platform, particularly regarding voice translation capabilities and cloud-based solutions to improve its Flex platform.

As of Sept. 30, 2024, Twilio's active consumer accounts had increased by over 4% year over year. Twilio has also announced that its dollar-based expansion rate was 105%, compared to 101% for the third quarter of 2023. The dollar-based expansion rate accounts for revenue from Twilio and ZipWhip, a toll-free messaging company acquired in 2021.

In early 2023, Twilio initiated its most recent share buyback program, enabling the company to repurchase approximately $1.0 billion in shares. In March 2024, Twilio updated its program, approving an additional $2.0 billion toward buying back shares. As of Sept. 30, Twilio had repurchased over $2.7 billion worth of shares. Share buybacks tend to signal to investors that the underlying company is financially healthy and prioritizes reinvestment. They also consolidate stock ownership, increasing the value of outstanding shares.

Twilio's total revenue for the third quarter was $1.13 billion, an increase of 10% year over year. The net loss for the quarter was drastically reduced to $10 million as Twilio is nearing profitability, and investors are interested in its future outlook.

The company has updated its financial guidance for the full year 2024, and it can be anticipated that updated organic revenue growth will increase between 7.5% and 8%, compared to previous estimates of 6%-7%. Organic growth primarily refers to a company relying on expanding through its own resources, not with financing or acquisition. This metric gives investors stronger insight into a company's financial strength and a clearer lens on a company's growth pattern without outside influence.

Twilio also initiated guidance for the fourth quarter of 2024, with total revenue expected to increase between 7% and 8% year over year.

Is Twilio worth a buy for investors after its major rally?

Twilio has experienced a large rally, culminating in its share price nearly doubling over the past six months, primarily due to the recently released third-quarter earnings results. Investors are beginning to strongly consider this company as another large player in the competitive AI and online automation space.

In 2021, when the overall environment for an up-and-coming automation technology platform was favorable, Twilio's shares were trading at over $400. As of this writing, the company's shares are trading at over $110 for the first time since mid-2022.

Twilio has taken major steps in a positive direction by overhauling its business structure and expressing a desire to prioritize cost-saving methods and enhance its communication products. It operates a market-leading (CPaaS) business, which is only becoming more in demand as the generative AI space continues to evolve.

The release of this third-quarter earnings result has signaled to investors that the company has a strong future outlook and may soon begin to generate net income growth. Twilio offers investors a solid option for a cloud communications company at the forefront of its industry. It is a stock that has been trading sideways for the last couple of years and is now climbing toward previous heights.

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Noah Bolton has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Twilio. The Motley Fool has a disclosure policy.