Twilio (TWLO) is up `20% after the company reported strong fourth quarter results and offered upside revenue guidance last night.
Twillio is the leading Cloud Communications Platform company. Yesterday afternoon, the company beat and raised expectations on the top-line for the third quarter in a row.
Revenue was up 41% to $115 million versus $102.5-104.5 million guidance. Non-GAAP net loss of $0.03 was better than the ($0.05)-(0.06) guidance.
One factor that prevented the stock from rallying last quarter despite the strong top line performance was gross margin contraction. Fourth quarter adjusted gross margin fell ~600 basis points year-over-year but was flat quarter-over-quarter at 53%.
On the call, management said gross margin will be at that level or better in 2018. They said they are not managing that line-item near term, they are focused in growing the top-line. Gross margin contraction is coming from lower (variable) business from Uber, lower gross margins from international business and foreign exchange headwinds.
Management sees a huge opportunity in the business long-term so they are focused on growing the top-line, they see non-GAAP break even results in the third quarter and positive free cash flow should be a quarter or two after that.
At the December Analyst Day, management called for a long-term gross margin of 60-65% and operating margin of +20%.
Twilio guided first quarter and fiscal 2018 revenue guidance well above estimates with net losses for both periods slightly larger than expected.
Fiscal 2018 guidance implies revenue growth of 28% at the midpoint versus 44% growth in 2017. Twilio has made a habit of reporting big sales upside so this guidance is likely conservative.
TWLO is now encountering resistance at the high end of its recent channel in the low-$30s. The stock trades at just under 6x sales estimates.