Twilio - 2020Q2 Earnings preview

Q2 20 Earnings Preview

Context

Twilio is a market leader in Communication Platform as a Service (CPaaS) space and enables businesses (developers) to build and integrate real time communication capabilities into their services.

Twilio is currently a Top 10 holding for me and I consider it a Category Killer.

Twilio reports Q2-20 earnings on 4 August 2020 (after-market close).

The stock jumped around 40% on its previous (Q1-20) earnings release, from $122 level to finish the day around $170 on 7 May as we learned that COVID-19 pandemic accelerated the digitisation trend across several verticals such as education, healthcare and retail which far outweighed the relative weakness in impacted verticals like hospitality and ride-sharing.

The stock has been up another another 68%! since then to $286 level at the time of writing this post.

It is obvious that the bar is set extremely high ahead of Twilio’s Q2 release.

In this blog post I set out my approach to how I am preparing for its coming earnings release and what I will be looking forward to.

Earnings Preview

Twilio has a history of beating analyst expectations and raising guidance.

This is how the last few historical revenue and earning surprises look:

History of revenue surprises:

History of earning surprises:

Therefore, on average Twilio beats by 5% on the top line and by 5 cents on the bottom line.

Q2-20 guidance:

Back in May, Twilio provided the following Q2 -20 guidance while withdrawing its previously issued FY20 guidance due to COVID-19 uncertainty:

Current Analysts Revenue estimates (source seeking alpha) are as follows:

It is interesting to note that the highest Q2 estimate is only 4% higher than the estimates/Twilio’s own mid-point guidance so I expect anything above $381.5m (above the highest estimate) to be a good beat and imply mid-40s YoY growth rate which would be great for a company with rev run rate of $1,500m+.

Similarly, current Analyst EPS estimates (source seeking alpha) are as follows:

Based on the above, I expect anything above -0.03p to be a good beat for Q2 EPS.

Next Quarter guidance:

Revenue: I consider anything above $400m to be a good raise and imply a c40% YoY top line growth rate for a company with $1.5bn+ rev rate.

EPS: I consider anything guided to breakeven would be a good raise and imply the company could be proftable on a non-GAAP basis for the FY2020.

FY guidance:

Twilio withdrew its previously issued full year guidance back in May due to COVID-19 uncertainty so it will be interesting to see what they have to say on this front on 4 August.

Revenue: I consider anything above $1,585m to be a good raise and imply a 40% YoY growth rate for Fiscal Year 2020.

EPS: Anything guided to breakeven would be a good raise and demonstrate strong operating leverage while maintaining 40% YoY top line growth rate.

Other key metrics

Other key metrics I will be watching:

1. SendGrid integration: Q2-20 will be the first full quarter where we get a like for like Twilio+SendGrid comps on YoY basis - It will be interesting to see if the revenue growth rates and accompanying commentary are indicative of strong synergies and cross-selling.

2. Active customer accounts: Last quarter they were up 23% YoY. It will be interesting to see if this momentum was maintained during Q2/Q3 and ideally continued to accelerate.

3. Dollar Based Net Expansion rate: it was 143% for Q1-20 (135% excl SendGrid Contribution) and 124% for Q4-19. I consider anything above 125% to be extremely good!

4. International expansion: The company is also growing internationally with full year 2019 driving 29% of revenue from international, versus 25% in 2018 and 23% in 2017. It will be good to see if there is any updates in the release and/or the commentary on this front.

5. Use cases and COVID-19: Last quarter there was plenty of positive commentary and use cases (for e.g tele-health) of how COVID-19 has drastically accelerated digital transformation projects across many industries. I am looking for evidence of continued momentum on this front.

6. Stock Based Compensation: Hopefully, this is decelerating (increasing at a slower pace) as per previously issued commentary from Twilio’s management.

Thanks for reading and hope you enjoyed!

Disclaimer: this blog is for informational purposes only and should not be considered as investment or financial advice. You are solely responsible for your own investment decisions and you must do your own research. Author is long shares of Twilio.