Twilio’s Q2 revenue growth overshadowed by weaker guidance - but 2023 profitability target remains

Derek du Preez Profile picture for user ddpreez August 5, 2022 Audio mode
Summary:
Twilio is being cautious given the current macro environment, but said that demand for its customer engagement platform was still strong.

Twilio Signal Jeff Lawson Great Communications Renaissance by @philww

Customer engagement vendor Twilio delivered solid Q2 results this week, but its share price fell in after hours trading due to weaker guidance for the next three months. On an analyst call announcing the numbers, the executive team were keen to allay concerns that the macroeconomic headwinds were impacting the firm too much. 

For Q3 sales at Twilio are forecast to be between $965 million to 975 million, compared to estimates of $979.32 million. However, the company added that its previously stated intention to achieve profitability in 2023 still stands. 

Commenting on the company’s current position in the market Twilio’s President of Revenue, Elena Donio, said: 

In general, companies are continuing to prioritize investments that are responsible for driving revenue and efficiency. We're super fortunate in that we have products in all of those spaces. We haven't yet seen any kind of significant degradation in demand. But we do have some exposure areas that I think are worth mentioning. 

In areas like SMBs and consumer and digital natives…we know could be impacted by a prolonged downturn. But with that said, we also have some spaces that we think will operate and continue to perform quite well.

We've seen a couple of recent isolated areas of softness, more specifically in areas like crypto, consumer on-demand, social. But again, that impact's not material. We don't think we're immune, but we also think our products fit in kind of a perfect space for continued investment. 

And so we're continuing to watch it really, really closely, and we're continuing to watch top of funnel, cycle lengths and things like that, and we’ll continue to be really sort of diligent in our analysis and certainly as well in our response to the extent we see additional softness come to fruition.

Key figures from Q2 include: 

  • Revenue of $943.4 million, up 41% year-over-year. Organic revenue grew 33% year-over-year.

  • GAAP loss from operations of $311.9 million for the second quarter of 2022, compared with GAAP loss from operations of $202.3 million for the second quarter of 2021.

  • More than 275,000 Active Customer Accounts as of June 30, 2022, compared to 240,000 Active Customer Accounts as of June 30, 2021.

Focus on efficiency

Twilio COO Khozema Shipchandler said that whilst the company has been resilient, the team isn’t naive to what’s happening in the broader economy and is readying itself for a variety of scenarios. Twilio has slowed down hiring, except for some key areas, as a result. However, Shipchandler added: 

I think irrespective of the macro environment, we're intending to be profitable next year no matter whether it has an impact on growth or not.

We are seeing some longer sales cycles, but that's being offset, in part, by volume gains in some other areas. And so I think sitting here today, based on what we know, what we see, we feel pretty good about certainly our first half results and the setup for Q3 as well. That said, there's a lot more work for us to do given the magnitude of the opportunity in front of us.

On how the company moves forward, Donio said that Twilio as an organization - its processes and systems -  is ready to work harder. She said: 

What that means is that we should be working much more toward applying a human touch to the moment the customer journey really requires it. And to the solutions - selling moments that really require it as well. So we're looking for efficiency there. 

We're also finding efficiencies in marketing and ensuring our pricing is reflective of the value that we're providing, in exploring new and novel ways to tap into that vibrant partner ecosystem that you mentioned.

All of that is leading to an opportunity for us to shift more of our selling capacity to software, while also making sure that we're leveraging more self-service capability for customers that don't actually require hand-to-hand account coverage. I think the opportunity we have is massive in those areas.

My take

Twilio’s experience isn’t rare amongst technology vendors - caution is the name of the game. The demand is still there, but it seems that focusing on efficiency and preparing for a rough for months is the status quo for the medium term. 

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