Twilio's stock soared after the company presented a positive outlook for future profitability, outlining plans to achieve a 21% to 22% adjusted operating margin by 2027. The cloud communications software provider also projected $3 billion in free cash flow over the next three years.
Twilio shares experienced their most significant surge since 2020 following the company's announcement of an optimistic forecast for the coming years. During an investor event, Twilio projected its adjusted operating margin to expand to a range of 21% to 22% by 2027 as part of 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 20% on Friday, marking their largest gain since the early stages of the Covid pandemic, after the cloud communications software vendor unveiled an encouraging profit forecast for the foreseeable future. The event took place on Thursday, a little over a year after the company appointed Khozema Shipchandler as CEO. Shipchandler, who had served as Twilio's president and previously spent 22 years at GE, succeeded co-founder Jeff Lawson.Twilio now anticipates its adjusted operating margin to reach between 21% and 22% by 2027, exceeding Visible Alpha's consensus of 19.68%. Twilio's adjusted operating margin in the recent past lagged behind this target. At Thursday's event, company executives pledged to generate $3 billion in free cash flow over the next three years, compared to approximately $692 million in free cash flow for 2022, 2023, and 2024. The Visible Alpha consensus for Twilio's 2025 through 2027 stood at $2.76 billion. Twilio, which handles text messages and emails for its clients, refrained from issuing a revenue growth target for 2027 at its Thursday event. However, Shipchandler did inform analysts at the investor gathering that 'we're orienting the company to deliver against double-digit growth over time.' For 2025, the company projected $825 million to $850 million in free cash flow and the same amount in adjusted operating income, with 7% to 8% year-over-year revenue growth. The Visible Alpha consensus projected $814 million in adjusted operating income and approximately $808 million in free cash flow. The 2025 revenue forecast aligned with the LSEG consensus. Twilio's journey began in 2016 as a high-growth software company capitalizing on the shift to the cloud. It emerged as a significant early beneficiary of the Covid remote work boom as more companies relied on mobile communication to stay connected with employees and clients. The stock surged over 240% in 2020. However, in 2022, the stock plummeted by over 80% of its value as investor sentiment shifted from growth to profitability, grappling with rising interest rates and soaring inflation. Twilio implemented cost reductions in early 2023, and activist investors Anson Funds and Legion Partners Asset Management advocated for the 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 approximately doubled as revenue growth has accelerated and losses have narrowed. By expanding into new areas, such as conversational artificial intelligence, Twilio asserts it can target a $158 billion total addressable market by 2028, compared to $119 billion when focusing solely on the communications and customer data platform categories. Twilio's preliminary results for the fourth quarter show 11% revenue growth, with adjusted operating income exceeding the high end of the $185 million to $195 million range the company provided in October. Analysts surveyed by LSEG had anticipated 7.9% revenue growth and, according to Visible Alpha, the adjusted operating income consensus was around $190 million. Baird analysts William Power and Yanni Samoilis upgraded their stock rating to the equivalent of buy from the equivalent of hold in a Friday note to clients, raising their price target to $160 from $115. The analysts stated 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 Profit Forecast Share Price Investor Event Free Cash Flow Operating Margin
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