Although shares of Twilio(NYSE: TWLO) have underperformed the broader market so far in 2024, with a gain of 19%, compared to the 23.6% gain achieved by the S&P500 index, a closer look at the recent share price movements will tell us that investors have become incredibly bullish on the company lately.
More specifically, Twilio stock has gone parabolic since reporting third-quarter results on Oct. 30, rising 28% in the past week on a better-than-expected set of numbers and improved guidance for the year. A parabolic move refers to a rapid increase in a company’s stock price over a short period of time (similar to the right side of a parabolic curve). The good part is that Twilio may be able to maintain its new-found momentum thanks to artificial intelligence (AI).
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Let’s take a look at how AI plays a central role in helping Twilio ramp up its growth and could unlock a solid long-term growth opportunity for the company.
Twilio’s third-quarter revenue rose 10% year over year to $1.13 billion, ahead of the consensus estimate of $1.09 billion. The company also reported a whopping 76% year-over-year increase in its operating results to $1.02 per share, easily surpassing the consensus estimate of $0.86 per share. Twilio’s guidance proved to be the icing on the cake, as the company now expects to end 2024 with organic revenue growth of 7.5% to 8%, compared to its previous guidance of 6% to 7% growth.
In fact, Twilio management has raised adjusted operating income expectations from $650 million to $675 million, to a range of $700 million to $710 million. It also expects to generate between $650 million and $675 million in free cash flow this year.
Twilio’s focus on controlling costs and the growing appeal of its new features that use AI to help its customers get more business from their customers are the reasons behind its accelerating sales growth and stellar revenue growth . Twilio offers a cloud-based communications platform that allows customers to reach their customers across channels such as text, voice, chat, video, email and more.
The company has been integrating AI into its cloud platform since last year so that it can enable its customers to reach their customers in a more efficient way and help them win a bigger share of their wallets. The good thing is that the strategy now seems to be paying off. During his latest earnings conference call, Twilio CEO Khozema Shipchandler noted:
More customers are turning to Twilio because we deliver stronger ROI, delivering demonstrable results that help customers increase revenue and reduce costs. By integrating AI with our core product suite, we can automate capabilities, increase productivity, and drive personalization at scale.
Shipchandler also said Twilio is placing a “concerted focus on embedding AI and machine learning across the Twilio platform” and provided several examples of its customers benefiting from increased adoption of its AI-focused offerings. Not surprisingly, Twilio’s AI-focused offering is gaining momentum as the size of the communications platform-as-a-service (CPaaS) market Twilio serves is expected to grow from $12 billion this year to $121 billion by 2034, according to Future Market. Insights.
The research firm points out that the deployment of AI tools in the CPaaS space will play a pivotal role in driving the stellar growth of this market over the next decade. This probably explains why Twilio is now witnessing a bump in its customer base. The third quarter ended with 320,000 active customer accounts, compared to 306,000 in the same quarter last year.
More importantly, the company reported a dollar-based net expansion rate of 105% last quarter. A value above 100% in this metric means that Twilio’s customers have increased their use of the company’s solutions or are purchasing additional solutions from the company. The metric compares Twilio customer spending in a given quarter to those same customers’ spending in the same quarter of the previous year.
What’s worth noting here is that Twilio’s dollar-based net expansion rate improved from 101% in the same quarter last year. Twilio could therefore be at the beginning of a healthy growth curve thanks to AI. That is why analysts have also increased their growth expectations.
TWLO revenue estimates for the current fiscal year
Analysts expect Twilio to end 2024 with earnings per share of $3.67, up nearly 50% from last year.
TWLO EPS estimates for the current fiscal year
As the chart above shows, earnings expectations for the next two years have been raised lately, with analysts expecting Twilio to deliver double-digit earnings growth in 2025 and 2026. Furthermore, the company is expected to achieve annual earnings growth of 20%. for the next five years. However, don’t be surprised if you see better performance due to higher customer spending on the AI solutions.
All of this makes Twilio one of the best AI stocks to buy right now, considering it trades at just 22 times forward earnings, a deep discount to the US tech sector’s average earnings multiple of 49. If the market decides to reward Twilio with a higher earnings multiple in the future, thanks to its AI-powered growth, it could deliver excellent returns for investors in the long run, given the rate at which its bottom line is likely to grow.
So there’s a good chance that Twilio’s red-hot stock market will continue, which is why investors should consider buying it before it goes higher.
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Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool holds and recommends positions in Twilio. The Motley Fool has a disclosure policy.
This artificial intelligence (AI) stock has gone parabolic and buying it is a no-brainer right now. Originally published by The Motley Fool
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