A Look At Twilio's Huge Quarter

Twilio Inc (NYSE: TWLO) reported blowout second-quarter earnings Monday, but some analysts are saying Tuesday’s 19-percent gain is just the beginning for the stock.

The Analyst

Baird analyst William Power reiterated his Outperform rating for Twilio and raised his price target from $50 to $82.

The Thesis

According to Power, the combination of better-than-expected revenue growth, profitability and a significant guidance hike was nearly a best-case scenario for investors. In a note on Tuesday, Power outlined the key takeaways from Twilio's earnings:

• $135.0 million in Q2 base revenue beat Baird’s expectations of $122.5 million.
• Twilio reported its first-ever adjusted quarterly profit of 3 cents per share.
• Q3 base revenue guidance of $142-$143 million far exceeded Baird’s target of $128.2 million.
• Dollar-based net expansion growth rate increased from 132 percent in Q1 to 137 percent in Q2.
• In addition to core growth from voice and messaging, application services growth was promising as well.
• A new contract with Flex could generate momentum over time.
• Active customer count grwe 6.2 percent from Q1 ro 57,350.
• Gross margins were flat at 55.0 percent compared to Q1 but ahead of Baird’s target of 54.0 percent.
• Full-year guidance suggests 49.8 percent revenue growth.

While Twilio stock is trading at a valuation premium to the broad SaaS group, Power said the second-quarter numbers suggest Twilio should be a long-term success story.

“We remain positive on the strong underlying cloud communications trends, and are raising our estimates and target price,” Power said.

Price Action

Following Tuesday’s big gain, Twilio stock is now up 211.9 percent year-to-date. The stock traded around $75.70 at time of publication.

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