When I look at TWLO’s Q4 earnings report and step back to look at trends across multiple quarters, I see a lot more red on the map denoting slowdowns, decreases, and lumpiness in several key business metrics.
Revenue growth - Q4YOY revenue (54%) handily beat guidance by 13%. Revenue of $843M beat guidance by almost 10%. Sequential QOQ revenue (14%) also beat guidance by 10%. By themselves, these numbers seem impressive. However, they have beat their guidance by 10% or more for 6 quarters now - a little guidance sandbagging by the team? They guided for $865M for Q1 2022 - which will be 47% YOY and 3% sequentially QOQ. Q1 is typically their weakest quarter in the year. Organic growth has also been on the decline for 4 quarters now. The marquee acquisition, Segment, contributed only 7% to Q4 revenues. The sales teams were combined in Jan 2022 - it will be at least 2 quarters before we see meaningful growth from Segment.
Profitability - Gross margins have been slowing down for 6 quarters now. They need to significantly grow their higher margin businesses like application services, Segment, Flex etc. However I don’t see this happening for several quarters e.g. app services is only 12% share of annual revenues. Net P&L has also been decreasing for 7 quarters now. They have yet to declare when they will be truly profitable. They guided to being non-GAAP operating profitable by end of 2022…whatever that means & anyways, not fast enough, imo.
Cashflow - Operating cashflow is in the negative for two quarters and anemic overall. Free cash flow showing similar meh performance. I don’t want meh in a rising rate environment.
Market share - Tota customers grew 16% YOY and 2% sequentially QOQ. International revenue grew to 34%. Good progress on this front. International growth will put further pressure on profitability due to lower selling price points.
Debt - remains steady at $986M along with over $5.36B cash on the balance sheet.
Products - They still have a lot of work ahead - enhancing the Twilio CDP platform and integrating it with the sister products like Segment, Flex, Frontline, Engage etc. The competition is not waiting. Currently, TWLO is largely like a telco….handling messages between customers and their clients, charging a margin on top of fixed costs.
My conviction in TWLO has decreased with this Q4 2021 earnings report. I re-evaluated the company using my scoring method and their score remains in the mediocre range. They still have to prove that they can successfully pivot to higher margin businesses like Segment. This story will take a few quarters to play out. My patience has run out.