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Twilio (TWLO) stock has been on an impressive run, climbing 93.5% over the past three months. This remarkable performance reflects the company’s strong financial results. Adding to the optimism, Twilio’s Investor Day event on Jan. 23 provided further confidence in the company’s long-term growth potential, giving investors plenty of reasons to stay optimistic about its prospects.
The leading customer engagement solutions company offered robust growth projections. This signals that the stock’s recent growth might be just the beginning of a larger rally. Let’s take a closer look.
Twilio Provides Solid Growth Guidance
Twilio shared encouraging updates during its Investor Day, providing a positive outlook for both its near-term and long-term performance. The company revealed preliminary estimates for its fourth-quarter (Q4) and full-year 2024 results, showcasing stronger-than-anticipated growth across key financial metrics.
Twilio raised its Q4 revenue guidance, now expecting impressive 11% growth — an improvement from the previous forecast of 7%-8% growth. This reflects the resilience of its communications platform and sustained demand.
For Q4 2024, Twilio expects to report positive GAAP income from operations. Additionally, adjusted income from operations is forecast to exceed the higher end of its prior guidance. Twilio had initially predicted Q4 adjusted income to range between $185 million and $195 million. For the full year, adjusted income was projected between $700 million and $710 million, and the latest update suggests the income will be near the higher end of its previous guidance. Moreover, Twilio estimates that free cash flow for fiscal year 2024 will land between $650 million and $700 million.
Looking ahead, Twilio’s growth rate could accelerate, led by multiple catalysts, including the expansion of its addressable market and artificial intelligence (AI)-driven demand. Profitability is also projected to improve substantially. For instance, Twilio targets an adjusted operating margin of 21%-22% by 2027, a sharp increase from the 16.1% reported in Q3 2024.
Management remains bullish on the company’s future. Twilio is confident that it will deliver strong operating margins and generate over $3 billion in cumulative free cash flow through 2027. Moreover, if the company continues to maintain double-digit growth, it could deliver even better operating leverage, further enhancing margins and cash flow.
Factors Supporting Twilio’s Growth
Twilio is poised to deliver solid growth. Its top line will likely benefit from the ongoing strength in the Communications segment, led by solid momentum in messaging and email services. The company’s active customer accounts are also growing at a healthy pace. For instance, the number of active customer accounts has grown from over 290,000 in 2022 to more than 320,000 by the third quarter of 2024. This growth is even better among Twilio’s largest customers.
Besides scaling its revenue, Twilio is focusing on delivering sustainable earnings growth. The company is focusing on innovation, leveraging predictive and generative AI, and strengthening its relationships with independent software vendors (ISVs), resellers, and other partners.
Moreover, to expand its market share, Twilio is enhancing its self-service capabilities, refining its cross-selling strategies, and improving the interoperability of its Segment data platform. Further, the company is targeting expanding its international footprint, which will accelerate its growth.
Twilio is also taking steps to streamline operations and reduce costs. Efforts to modernize its infrastructure, automate business processes, and leverage AI to improve efficiency will enable it to improve profitability. Given these positives, Twilio could deliver solid revenue and operating margins in the coming years.
Analyst Sentiment on TWLO Stock
Wall Street analysts currently have a “Moderate Buy” consensus rating on TWLO stock. However, the stock could witness further rating upgrades as it continues to beat expectations and raises guidance in quarters ahead.
The Bottom Line
Twilio’s steady double-digit revenue growth, increasing profitability, and solid free cash flow make it an attractive long-term investment. Moreover, with the potential for further guidance upgrades and capital returns, Twilio shares could see significant upside in the years ahead.
