Twilio Q1 results beat expectations as company aims for profitability by 2023

Derek du Preez Profile picture for user ddpreez May 5, 2022 Audio mode
Summary:
Twilio executives highlight that the company’s period of investing should start to deliver results over the coming quarters.

Twilio Signal Jeff Lawson Great Communications Renaissance by @philww

Customer engagement vendor Twilio beat analyst expectations as it delivered its first quarter results for 2022 this week, as CEO Jeff Lawson reassured the market that the company is set for operating profitability during 2023. 

Twilio’s stock fluctuated heavily on the financial results, but settled on a positive upswing in extended trading on Wednesday. The general view from the company’s executive team is that Twilio will be seeing reduced costs over coming quarters, as the firm’s investments start to pay off. 

Co-founder and CEO Jeff Lawson told analysts: 

We delivered another strong quarter of results and continue to execute against our long-term strategy to build the world’s leading customer engagement platform. We remain confident in our ability to deliver 30% plus annual organic revenue growth through 2024, and we’re committed to delivering annual non-GAAP operating profitability starting in 2023.

To achieve this goal, we’ll continue to make the necessary investments in 2022, which will put us on a solid trajectory to deliver against our growth and profitability targets over the coming years.

The key numbers from Q1 2022 are: 

  • Revenue of $875.4 million for the first quarter of 2022, up 48% year-over-year. Organic revenue grew 35% year-over-year.

  • GAAP loss from operations of $217.8 million for the first quarter of 2022, compared with GAAP loss from operations of $197.3 million for the first quarter of 2021.

  • 268,000 Active Customer Accounts as of March 31, 2022, compared to 235,000 Active Customer Accounts as of March 31, 2021.

Twilio also announced that Elena Donio will become Twilio’s President of Revenue, taking on responsibility for all go-to-market functions, and as a result has resigned from her position on Twilio’s Board of Directors. Donio was previously CEO of Axium, and prior to that spent the majority of her career at Concur. 

Broader trends

Khozema Shipchandler, Chief Operating Officer at Twilio, provided some further insight into the company’s financial standing, where he said that whilst it wouldn’t be totally immune from some sort of large scale recession, or some broader macro crisis, it is well positioned to take advantage of ongoing digital investments. He said

Digital transformation remains a top boardroom priority. That obviously benefits Twilio as a variety of companies look to invest in their engagement strategies going forward.

It's not like we don't see the macro environment, whether it's economic or geopolitical, but we just think this business is extremely well positioned to capitalize on ongoing company's digital transformation efforts.

And despite impacts that we see that are inflationary, whether it be supply chain, or labor inflation, or interest rates, we've built those impacts into our models. We also have the benefit of having a really strong balance sheet, which obviously helps in these environments.

Shipchandler also spoke to Twilio’s profitability ambitions, which are closely tied to the company’s ongoing investment costs. He added:

What we've been saying over 3 years is there are a number of investments that we felt were very important to make. And these were planned investments. And in general, they were in Flex, our go-to-market capabilities, [and] Segment, which we see as a crucial piece of our customer engagement stack. 

We're kind of coming to the peak periods of growth in those investments. And it's not like we're not going to invest going forward, but the rate of cost growth in those investments is going to be lower than where we've been historically. And so slowing that cost growth, I think, will be the way that we end up getting there into the non-GAAP profitability for next year.

Update on Engage

CEO Lawson also gave an update on Twilio Engage, which was announced at the end of last year, and aims to provide buyers with a personalized engagement platform that focuses on a ‘bottom up’ approach, starting with real-time customer data. 

Lawson said that Engage should see general availability in the second half of 2022, but added that Twilio is still in a learning and development phase with early adoption customers. He added: 

We have great feedback from the early customers of Engage, and we actually have more customers requesting data access than we can accept. And that's always a good sign. But we've been receiving great feedback from those pilot customers and are taking the steps - responding to feedback, really understanding the problems they want to solve with Engage and making sure we're building the product, the list them solve their problems uniquely.

Lawson said that Engage is “filling a hole” in the market, with a platform that is built for B2C companies to help them understand their customers in terms of data, and then enabling them to execute on that understanding by personalizing every part of the journey. It’s the data that’s key. Lawson added: 

When I think about what Engage is doing, it is taking a data-first approach to marketing. And that is the modern way companies are marketing, especially in this whole privacy-forward world where you can't do the lazy thing with third-party anonymous cookies and IDFA and just kind of churning through customers that you bought on an advertising platform. 

Really, modern marketers are saying: ‘I need to understand my customer’. I need to personalize the journey that that customer is on and pay really good attention to them so that they become loyal, happy repeat customers. And so those are the types of companies that we are seeing early on in our pilot. 

I think all marketing is going to go this way. I think every marketer is going to, first of all, be spending money on having the best data, which is where all of this starts, and then having a platform that really is about activating data, as opposed to blindly sending campaigns and just measuring how many people want to subscribe. I think those days are over.

My take

The beauty of Twilio is its API-centric design, giving it flexibility to adapt to customer demands and put data at the center of its product plans. The company has clearly been investing heavily in its product portfolio and ramping up its go-to-market capabilities, including its executive leadership team - but now is the time to execute. The coming quarters will be telling as to how effectively this plan is resonating with buyers. However, the guidance is strong and as buyers look for more and more help with their data, as well as their external customer engagement, there’s plenty of opportunity. 

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