Twilio - Q3'21 Earnings

Disappointing earnings results from Twilio yesterday, sending its share price -18%. Once again gives reason to most of the board leaders hare to had exited their position at least a few quarters ago. Saul frequently underlines the importance of opportunity cost of capital – that is, the “cost” you pay by staying in a suboptimal position. Well, Twilio’s share price today is exactly the same price as it was a year ago today. Perhaps it’s more shocking to read that Twilio’s share price is -16% YTD (that is, 37% worse than the S&P 500!).

There are some (me included) that hung on to Twilio because of how phenomenal the company is – ah leader in pioneering the API economy, a culture that hangs their customer’s shoes in the office to remind employees to “walk in their customer’s shoes”, a CEO with an evangelical developer following. Yet, by following this board (and Saul in particular), I’ve learned that no matter how incredible the company may be – it doesn’t necessarily mean that it is the best use of our capital. And well, the results speak for themselves. It’s OK to be an admirer of a company without being an investor of it.

The Lowlights

(1) Organic revenue growth, which had accelerated from Q2 to Q3 the past two years, was down from 50% YoY in Q2 to 38%

(2) Dollar-Based Net Expansion Rate at 131% was the lowest its been in 7 quarters

(3) Operating expenses rose 64% YoY (similar rate than last quarter), leading to non-Gaap gross margins of 54%

(4) The departure of George Hu (COO), the #3 highest compensated executive at the company who had been in the company for almost 5 years

(5) Negative operating cash flow (-$20M) for the first time in 2+ years

(6) Revenue guidance of 39%-40% YoY next quarter (compared to guidance of 50%-52% last quarter!)

The Learnings

In retrospect, there have been several ‘opportunities’ to exit Twilio. The first one being when Lawson (CEO) highlighted accelerating growth without mentioning it was because of acquisitions; the second one being after the promise of expanding gross margins never game; and the third one being after customer growth last quarter was a meager 2.1% QoQ.

So in summary, it’s clear that my judgement was clouded by the passion for the company. Not to the extent that I didn’t see these issues; but rather I found them simpler to justify. This point is well explained in the Knowledgebase:

“Not accepting that an investment could be a mistake as it continues to go down is a dangerous error, and could be very expensive. A big problem investors have is getting attached to their previous decisions and not being willing to consider that they may have made a mistake…I try to always pay attention to criticism of a stock, to reevaluate my investments, and to get out if it turns out that I’ve made a mistake, or if the situation has changed…

**Sometimes changing your mind in the face of new evidence, and selling when necessary, is the most important thing you can do.**If you are wrong, you can always buy back in. I think that being willing to change my mind in the face of new evidence is one of the most important skills I have. And learning that it’s okay to change your mind when appropriate is one of the most important things I try to teach on this board. Let me remind you that I sometimes make mistakes getting into a company (big mistakes, on occasion), but that I am willing to consider the possibility that I was wrong, and change my mind when I see that I actually was wrong. And that that is very important. Although I realize that I make mistakes, I don’t regret my decisions. I figure I did the best I could at the time. And sometimes I make mistakes getting out too. So what! I can’t be right all the time.”

So, for anyone new in the board – welcome, and I hope this incentivizes you to read the knowledge base for the first, fifth, and fiftieth time. If you’re planning to invest your money, why not invest your time first to improve your returns by an order of magnitude?

Please read this before posting… and visit… to maximize your learning of the board


MAS4R, your post is hostile and a personal attack to a fellow board member who did nothing to you. It will be deleted. The same point of view without the personal jabs would of course be acceptable.


I did not find the previous posts here hostile, but I believe before posting we should do some DD and read everything that is provided by the company, spend sometime to analyze and then post.

I am referring to the provided Prepared Remarks document which is available at:…

The actual press release, and earning call transcript.

I would add couple of comments here, outside what Twilio 2.0 is (covered in their call, prepared remarks and press release).

  • The COO leaving is in order to take a break and move on to a higher position, for which he appears to be ready to do so, perhaps start his own company or get a CEO job somewhere else. He may have had some personal issues as well. The COO has been in the company for only 5 years, the company is just about 14 years old, the CRO is taking over the GTM and he is the one that has built the sales team, and will report directly to the CEO. The CRO was there before the COO, and I find the new structure bullish, especially since the company is preparing for their next step in their “natural” evolution.

  • Regarding their guidance - form the prepared remarks “As a reminder and to help
    normalize year-over-year comparisons, fourth quarter 2020 revenue included
    approximately $23 million from political traffic. Excluding that contribution from last year,
    our Q4 revenue growth is expected to be 45% to 47%.” in addition “Our fourth quarter
    revenue guidance implies a full year growth rate of 57%, which is incredibly strong for a
    company of our size and scale.”

  • Regarding their DBNER decreasing - from prepared remarks “Our dollar-based net expansion (DBNE) rate remained very strong at 131%, as we continue to drive use case expansion and new product adoption across existing customers on our platform. Going forward, we are implementing a new practice for
    integrating acquisitions into our metrics such that for any acquisitions that close beyond
    the first day of a quarter, we will begin including them into our metrics in the quarter
    following the anniversary of the acquisition. In that context, Segment will be included in
    DBNE and organic revenue metrics starting in the first quarter of 2022.”

So the way I read this is that we should expect that number to go up, not down. Also as far as this company being in the 30%s for the next 3 years, I think that is the minimum and is just to give an investors an idea (if its not obvious) what to expect. If you assume that their DBNER will stay at 130% for the next 3 years - that means they can achieve their estimates - without adding any new clients! Considering they are adding 10k clients now, without leveraging Segment and maximizing the potential of Twilio 2.0 - I find it hard to believe that they will not continue to add new business and expand offerings further.

  • Regarding their client growth, considering they are at 250k clients now, YoY that is 20% increase, which is remarkable for their scale! In previous quarter they had added 5k clients, this past quarter they have reported 10k new clients. If you look at that number, and compare to some of the other high growth companies, like DDOG, and CRWD (they have total ~ 15k clients) - that means Twilio adds over 50% of their total client base every quarter!

  • The margin pressure has been covered in their earning presentation and in the call - they are gunning for maximum growth, they are not trying to balance (depress) the growth of their messaging service. In the long run, they are confident that they will get to 60%s margins - but that is beyond their concerns right now.

Long Twilio 2.0


Hi rdgyy,

Great post on TWLO. I wanted to point out that DBNER > 130% does not necessarily mean TWLO can achieve growth > 30% without adding new customers because DBNER does NOT include customer churn. It only counts Active Customers this year vs Active Customer last year. If a customer is no longer “Active”, my understanding is that it WILL NOT be include in the DBNER figure.

You pointed out that they have 10K additional customer this quarter, but that number doesn’t tell us exactly how many customers are “new” nor does it tell us “how many customer left”. Additionally, some “customers” are counted more than once, so all of this is a bit hard to piece together (last line of definition of Active Customers below).

Here is their definition of Active Customer Accounts from their slide deck stating this -

Number of Active Customer Accounts: Twilio believes that the number of Active Customer Accounts is an important indicator of the growth of its business, the market acceptance of its platform and future revenue trends. Twilio defines an Active Customer Account at the end of any period as an individual account, as identified by a unique account identifier, for which Twilio has recognized at least $5 of revenue in the last month of the period. Twilio believes that use of its platform by customers at or above the $5 per month threshold is a stronger indicator of potential future engagement than trial usage of its platform or usage at levels below $5 per month. A single organization may constitute multiple unique Active Customer Accounts if it has multiple account identifiers, each of which is treated as a separate Active Customer Account.

Here is their exact definition of DBNER from their slide deck –

Dollar-Based Net Expansion Rate: Twilio’s ability to drive growth and generate incremental revenue depends, in part, on the Company’s ability to maintain and grow its relationships with existing Active Customer Accounts and to increase their use of the platform. An important way in which Twilio has historically tracked performance in this area is by measuring the Dollar-Based Net Expansion Rate for Active Customer Accounts. Twilio’s Dollar-Based Net Expansion Rate increases when such Active Customer Accounts increase their usage of a product, extend their usage of a product to new applications or adopt a new product. Twilio’s Dollar-Based Net Expansion Rate decreases when such Active Customer Accounts cease or reduce their usage of a product or when the Company lowers usage prices on a product. As our customers grow their businesses and extend the use of our platform, they sometimes create multiple customer accounts with us for operational or other reasons. As such, when we identify a significant customer organization (defined as a single customer organization generating more than 1% of revenue in a quarterly reporting period) that has created a new Active Customer Account, this new Active Customer Account is tied to, and revenue from this new Active Customer Account is included with, the original Active Customer Account for the purposes of calculating this metric. Twilio believes that measuring Dollar-Based Net Expansion Rate provides a more meaningful indication of the performance of the Company’s efforts to increase revenue from existing customers. For historical periods through December 31, 2019, Twilio’s Dollar-Based Net Expansion Rate compared the revenue from Active Customer Accounts, other than large Active Customer Accounts that have never entered into 12-month minimum revenue commitment contracts with the Company in a quarter to the same quarter in the prior year. For reporting periods starting with the three months ended March 31, 2020, Twilio’s Dollar-Based Net Expansion Rate compares the total revenue from all Active Customer Accounts, in a quarter to the same quarter in the prior year. To calculate the Dollar-Based Net Expansion Rate, the Company first identifies the cohort of Active Customer Accounts that were Active Customer Accounts in the same quarter of the prior year. The Dollar-Based Net Expansion Rate is the quotient obtained by dividing the revenue generated from that cohort in a quarter, by the revenue generated from that same cohort in the corresponding quarter in the prior year. When Twilio calculates Dollar-Based Net Expansion Rate for periods longer than one quarter, it uses the average of the applicable quarterly Dollar-Based Net Expansion Rates for each of the quarters in such period. As a result of the change in calculation of Dollar-Based Net Expansion Rate, unless specifically identified as being calculated based on total revenue, any Dollar-Based Net Expansion Rates disclosed by our Company in SEC filings, press releases and presentations prior to the date of our press release for the three months ended March 31, 2020, will not be directly comparable to our Dollar-Based Net Expansion Rates after that date.

Thanks again for the great post. I think the 20% drop was a bit overblown and will be holding on to my shares for the time being.

Lastly, thanks to Saul. I’ve been lurking here for at least 4 years. This board has changed my life. Those words don’t even do it justice, but I am not articulate enough to describe the impact Saul has had on my life.

PS: I had several lines bolded and italicized to make the post easier to read, but they are clearly not in the reply. I also remember trying to post a table more than two years ago that did not work at all. Between now and then I’ve seen somebody post something about “how to post on Saul’s board”, but I can’t find it and I’m still not convinced I have any business posting on this board. If someone knows what I’m talking about please send me that link as I would like to contribute a little more here, but my skills at posting are so poor I feel somewhat embarrassed!