TWLO Q3 2020 Earnings

Revenue Growth (yoy) accelerated to 52% for the quarter. Last 4 Q:
62% 57% 46% 52%

Next Q projected at 37%. They guided similarly to 37% for current Q3 which came in at 52%. Sandbagging.
FY2020 projected at 47%.

DBNER improved to 137%. Last 4Q:
124% 143% 132% 137%

Sequential customer count add. Last 3Q:
4.01% 7.12% 5.26% 4%


The only negative is the low GW (52%), much lower than other SaaS stock. To make it worse, it has been decreasing. Although GM is not the most important parameter, it is a concern to me.

I guess fundamentally their service is not as an essential service as DDOG or CRWD

A couple notes from the call…

On Gross Margins:

“…we discussed that gross margins would be negatively impacted in the short term as the growth of our messaging product has been re-accelerating, a trend that continued in Q3. To reiterate, this is a trade-off that we will gladly take as it add gross profit dollars which we can continue to reinvest, delivering elevated levels of growth.”

On Guidance:

“Please note that our guidance today does not include the impact of our announced acquisition of Segment. We expect the acquisition to close during the quarter and we do expect a modest top and bottom line impact in the fourth quarter.”


On Gross Margin and Twilio,

This gross margin reduction is just a consequence of being very successful with the current business model for delivering SMS (ie you buys them from a mobile operators and sell them on). Personally I would be more worried if Twilio were adding margin on these messages as it would give competition every opportunity to undercut. Instead it seems to me that Twilio is looking to make margin on their platform, their service levels and their innovative products. Much harder to compete against.



Yep! Based on the management comments, that is absolutely their strategy. Continue pushing the volume of these low margin items to grow revenue. Like you said, they’re building a higher margin platform off of this base.


On Q4 revenue guidance:

While there’s possibility of sandbagging, it’s also possible that the IT sector is starting to feel more of the slowdown from its customers due to covid. SAP, one of the largest software companies, reported a “weak” quarter and a weak guidance this past Monday. SAP’s “weak” quarter was just a 2% lower guidance, but their stock got punished with a drop of ~22%. (It seems the management team is surprised by this and the chairman bought a bunch of shares subsequently.) Fastly has been hit, and I wonder if other companies on the board such as DDOG, CRWD and NET might also be impacted by certain macro conditions.

And in TWLO’s Q&A, CFO said this:

"So we continue to see strength certainly in Q3. But that macro environment is a little bit uncertain, and so I think we’re just being prudent. I think our Q4 guidance as published certainly shows continued strong growth. We remain cautiously optimistic about our performance in the near term.

And then in the medium term, as you’ll note, we provided guidance at the Investor Day of 30% over the next four years. So we certainly remain confident in our growth prospects in both the near and medium terms."

So as a long term investor, I would purchase at a stock price that reflects 30% growth, and not be too enthusiastic and expect 52% going forward.