Twilio's stock experienced a significant surge after the company presented a positive outlook for the coming years, projecting an expansion of its adjusted operating margin and a commitment to generating substantial free cash flow.
Twilio shares experienced their most significant surge since 2020 following the company's optimistic forecast for the coming years. At an investor event, Twilio projected that its adjusted operating margin will expand to between 21% and 22% by 2027, outlined within a three-year guidance framework. CEO Khozema Shipchandler expressed confidence to CNBC prior to the event, stating, 'If we execute well in 2025, I think we write our own story from 2026 on.
' Shares skyrocketed over 20% on Friday, poised for their largest gain since the early stages of the Covid pandemic. This surge was triggered by the cloud communications software vendor's uplifting profit forecast for the foreseeable future. The investor event, held on Thursday, marked a little over a year since Shipchandler, who previously served as Twilio's president and spent 22 years at GE, assumed the CEO position from co-founder Jeff Lawson. During the event, company executives committed to generating $3 billion in free cash flow over the next three years, a substantial increase from the approximately $692 million generated in free cash flow for 2022, 2023, and 2024. This projection surpasses the Visible Alpha consensus of $2.76 billion for Twilio's free cash flow from 2025 to 2027. Twilio, which specializes in sending text messages and emails for its clients, did not provide a revenue growth target for 2027 at the Thursday event. However, Shipchandler assured analysts that the company is 'orienting the company to deliver against double-digit growth over time.' For 2025, Twilio anticipates $825 million to $850 million in free cash flow and the same amount in adjusted operating income, coupled with a 7% to 8% year-over-year revenue growth. This 2025 revenue forecast aligns with the LSEG consensus. Twilio has undergone a notable transformation since its inception in 2016 as a high-growth software company capitalizing on the shift to the cloud. It benefitted significantly from the Covid remote work boom as more companies relied on mobile communication to maintain contact with employees and clients, resulting in a stock surge exceeding 240% in 2020. However, in 2022, the stock experienced a substantial decline of over 80% as investor sentiment shifted towards profitability over growth, grappling with rising interest rates and soaring inflation. Twilio initiated cost-cutting measures in early 2023, and activist investors Anson Funds and Legion Partners Asset Management advocated for a sale of Twilio or one of its business units. Since activist firm Sachem Head Capital Management secured a Twilio board seat in April, the company's stock has rallied approximately 81%, fueled by accelerating revenue growth and narrowing losses. By venturing into new sectors, such as conversational artificial intelligence, Twilio claims it can target a $158 billion total addressable market by 2028, compared to $119 billion when focusing solely on communications and customer data platform categories. Twilio's preliminary fourth-quarter results demonstrated 11% revenue growth, with adjusted operating income surpassing the upper end of the $185 million to $195 million range projected in October. Analysts surveyed by LSEG anticipated 7.9% revenue growth, while Visible Alpha estimated the adjusted operating income consensus at approximately $190 million. Baird analysts William Power and Yanni Samoilis upgraded their stock rating to a buy equivalent from a hold equivalent in a Friday note to clients, raising their price target to $160 from $115. The analysts indicated that they 'expect a potential beat-and-raise cadence to continue to push shares higher, particularly with the strengthening profitability, cash flow, and capital returns.'
Twilio Cloud Communications Stock Surge Profit Forecast Operating Margin Free Cash Flow Investor Event Khozema Shipchandler
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