Twilio Beats With $1.65 a Share and $1.56 Billion in Sales but Shares Fall Over 12 Percent

Twilio beat Wall Street forecasts in the third quarter and still saw its shares tumble, as investors focused on what the guide said about slower organic growth. The communications software company reported adjusted earnings of $1.65 a share, above the IBES estimate of $1.47 a share, Reuters reported. Revenue rose 20 percent to $1.56 billion, above analyst predictions of $1.515 billion, Investor's Business Daily reported. On a reported basis, GAAP operating income was $148.63 million in the quarter.

By the headline numbers, the quarter cleared both bars that matter most on results day. Earnings beat the estimate by 18 cents a share, and revenue beat predictions by about $45 million while growing by one fifth from a year earlier. A company growing sales at 20 percent and beating on profit would normally expect a warmer reception, which is why the share move pointed so clearly at the outlook rather than the quarter itself.

Why the stock fell anyway

Shares tumbled over 12 percent in extended trading after the results. Investor's Business Daily said guidance underwhelmed and signalled slowing organic growth, despite the earnings and revenue beat. For the December quarter, Twilio expects revenue of $1.60 billion at the midpoint of its guidance, a figure that includes acquisitions, and earnings per share of $1.48 to $1.53.

That December guide is the centre of the story. A midpoint of $1.60 billion is above the third quarter total of $1.56 billion, but it includes acquisition contributions, so investors read it as a softer underlying pace than the 20 percent growth just reported. The earnings guide for the December quarter, at $1.48 to $1.53 a share, also sits below the $1.65 a share the company just delivered in the third quarter. Together, those two lines gave traders a reason to sell a beat.

What management said

Chief executive Khozema Shipchandler struck a positive note in the company's release. "Q3 was a great quarter for Twilio, driven by disciplined execution and broad-based strength across our product portfolio," he said. The results themselves support part of that description: revenue growth of 20 percent, a clear earnings beat, and positive GAAP operating income of $148.63 million are not weak numbers. The argument in the market on Thursday was not about whether the third quarter was good. It was about whether the growth rate it showed can hold, and the December guide left that question open.