Twilio (TWLO) is trading lower today despite reporting strong Q1 results last night. Twilio develops APIs that are used by its customers' software developers to plug communication abilities (phone calls, text messaging via SMS, video etc.) into their apps.
You probably use Twilio all the time but just don't know it. For example, if you're taking an Uber or a Lyft and you call the driver from inside the app, you're using Twilio. Another example might be a restaurant that plugs in a Twilio API in its reservation platform in order to notify a diner that his or her table is ready.
Twilio recently closed on its acquisition of SendGrid (SEND). This was a big deal for them, not only due to its approximate $2 bln cost, but it also seems to be good operationally. SendGrid specializes in developing APIs that allow its clients to deliver emails to customers. Its flagship API Email platform allows a customer like a bank that emails a survey to someone who called and spoke to a customer service rep. This expands Twilio beyond their focus on voice and messaging into email.
Turning to the Q1 results, non-GAAP EPS improved to $0.05 from a $(0.04) loss in the prior year period. It was also well above prior guidance of $0.00-0.01. Revenue jumped 80.5% yr/yr to $233.1 mln, which also was well above prior guidance of $222-225 mln. These numbers include results from SendGrid for two months, as the deal closed on February 1. Next quarter will benefit from the full impact of SendGrid.
In terms of guidance, for Q2, Twilio expects non-GAAP EPS of $0.02-0.03, which is in-line with market expectations. However, the revenue guidance of $262-265 mln was a good bit better than expected. Full year EPS guidance was increased to $0.11-0.13 from $0.08-0.11. Revenue guidance also ticked higher.
The metric that stands out to us is the revenue growth. Granted, some of that 80.5% growth is coming from the SendGrid acquisition, which was quite large. However, it is still an impressive top line growth rate. Twilio broke out the numbers on the call, noting that Twilio's base revenue growth was above 60% yr/yr organically and its SendGrid segment's organic growth for the stub period was 30% yr/yr. So that was good growth overall.
We are always interested in Twilio's new innovations and new partnerships. On the call, Twilio made a couple of key announcements: It's providing support for AMP for email which is "a new technology being implemented by Google to bring a dynamic and interactive experience to Gmail," according to CEO Jeff Lawson.
Lawson also said that Twilio has launched Twilio for Salesforce, which "allows businesses to easily add out-of-the box SMS capabilities, covering everything from one-to-one personalized interaction, alerts and notification, campaigns and more to their existing workflows in Salesforce CRM."
Overall, we are fans of TWLO as it operates in an attractive market niche that is growing. There are lots of companies out there that still in the early stages of their transition to digital. They are aware that they need to communicate more seamlessly with their customers. So why is the stock lower today despite the strong report? We are not seeing an obvious reason. It may just be profit taking as the stock has made a huge run in recent months (+77% since late December).