Twilio CEO Khozema Shipchandler speaks at Twilio’s Signal event in Sao Paulo on August 14, 2024.
Courtesy: Twilio
Cloud communication software manufacturer Twilio on Thursday issued a hopeful profit forecast for the coming years.
The company sees its adjusted operating margin expanding to between 21% and 22% in 2027 as part of a three-year guidance framework. This is higher than the Visible Alpha consensus of 19.68%. Twilio’s adjusted operating margin last quarter was 16.1%.
Twilio unveiled its new guidance at an investor event on Thursday. There, company executives also committed to generating $3 billion in free cash flow over the next three years, compared to about $692 million in free cash flow for 2022, 2023 and 2024. The Visible Alpha consensus for Twilio from 2025 to 2027 was $2.76 billion.
The company’s share price rose more than 10% in extended trading after the company released its presentation for the event.
If 2024 was about rebuilding Twilio’s foundation, 2025 is about execution, CEO Khozema Shipchandler told CNBC ahead of the company’s investor day.
“If we execute well in 2025, I think we write our story from 2026 onward,” said Shipchandler, who joined Twilio as chief financial officer after 22 years at GE in 2018 and replaced co-founder Jeff Lawson as CEO in January 2024.
Twilio, which sends text and email messages to customers, did not release a revenue growth target for 2027 at its Thursday event.
Management on Thursday also provided guidance for 2025. It called for $825 million to $850 million in free cash flow and the same amount in adjusted operating income, with 7% to 8% year-over-year revenue growth per year. Consensus Visible Alpha was $814 million in adjusted operating income and about $808 million in free cash flow. The 2025 revenue forecast was in line with the LSEG consensus.
Over 9,000 AI companies are already building Twilio services. This includes OpenAI, which in December announced the 1-800-CHATGPT service that relies on Twilio voice tools.
“We want to be able to get a bunch more of them, as well as large enterprises,” Shipchandler said. “We’re kind of open season on both.”
Shareholder pressure mounts
After Twilio stock debuted on the New York Stock Exchange in 2016, investors flocked as the company consistently delivered high revenue growth rates. Shares edged lower in 2022 as investors became more interested in profitable companies, with interest rates rising. At the same time, Twilio’s revenue growth was slowing.
The shareholder data prompted a reorganization that included a 17% reduction in the workforce as early as 2023, and activist investors Anson Funds and Legion Partners Asset Management pushed for a sale of Twilio or one of its business units, CNBC reported.
Since activist investor Sachem Head Capital Management won a seat on Twilio’s board last April, Twilio shares have risen about 81% as revenue growth has accelerated and losses have narrowed.
Twilio has an opportunity to show double-digit growth in 2025 and beyond, Mizuho analysts said in a note earlier this month. Analysts have the equivalent of a buy rating on the stock.
By expanding into new areas, such as conversational artificial intelligence, Twilio says it could sell to a total addressable market of $158 billion by 2028, compared to $119 billion when it focuses only on the communication and platform categories. customer data.
The company does not believe acquisitions will be necessary to reach the new total addressable market, a spokesman said.
Twilio’s preliminary results for the fourth quarter show 11% revenue growth, with adjusted operating income exceeding the high end of the $185 million to $195 million range the company issued in October. Analysts polled by LSEG had expected 7.9% revenue growth, and according to Visible Alpha, the adjusted operating income consensus was around $190 million.
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