The Twilio stock price has surged in the past few months, thanks to its growth trajectory and strong business performance. The TWLO share price jumped to $150 on Wednesday, the highest level since April 2022 and 258% from its lowest level in 2023. So, is the TWLO stock a good investment ahead of its earnings?
Twilio stock soars ahead of earnings
Twilio is a top American company that is used by thousands of companies of all sizes in the US and around the world. It is not a consumer-facing company, which explains why most people have never heard about it.
Instead, the company provides its solutions to some of the biggest companies, including Airbnb, IBM, and Toyota. It specifically focuses on user authentication and identity, voice, messages, and emails. For example, whenever you receive a text message from Airbnb when signing up or booking, chances are that you are using the Twilio system.
Twilio’s demand has jumped over the years, which explains why its annual revenue has jumped from $1.13 billion in 2019 to over $4.3 billion in the trailing twelve months (TTM).
Twilio has also continued to narrow its losses, and analysts expect that it will be profitable soon. Its annual loss moved from $1.256 billion in 2022 to $462 million in the trailing twelve months.
The next key catalyst for the Twilio stock price is its earnings that comes out on Thursday. According to Yahoo Finance, the average revenue estimate is $1.18 billion, a 9.8% annual increase. That will bring the annual revenue to $4.4 billion.
The average analyst estimate is that its quarterly earnings per share (EPS) will be $1.03, higher than the 86 cents in the previous year. This growth will lead to an annual earnings per share of $3.69.
The most recent numbers revealed that Twilio’s revenue rose by 10% in the third quarter to $1.13 billion. Most of this growth was in its communications division, which brought in $1.06 billion.
Read more: Twilio stock soars 150%: what’s driving the rally?
Is TWLO stock undervalued or overvalued?
One key concern that many analysts have is that Twilio is a highly overvalued company because of its $21 billion market cap and the fact that it is still a loss-making firm.
According to SeekingAlpha, Twilio has a forward price-to-earnings (PE) ratio of 38, higher than the sector median of 25. However, one should not use the earnings figure on Twilio now just because it is about to become profitable.
The best approach is to use the popular rule-of-40 metric to find out whether it is a cheap or expensive company. This is a popular approach that considers the company’s revenue growth and its profit margin.
Twilio has a forward revenue growth metric of about 10%, and a net income margin of minus 10.6%. That gives it a rule-of-40 figure of about zero, a sign that it is prioritizing growth over profits. Twilio is also overvalued when you add the levered FCF margin of 19% with its growth.
Therefore, that is a sign that the company is priced for perfection and that it needs to report strong numbers.
Twilio stock price analysis
The weekly chart shows that the TWLO stock price has been on a strong bull run in the past few months, as we predicted. Recently, the 100-week and 50-week moving averages crossed each other, forming a mini-golden cross pattern.
Twilio has also moved above the 23.60% Fibonacci Retracement level of $140, while momentum oscillators have all pointed upwards. Therefore, the stock will likely continue soaring as bulls target the 50% retracement point at $250, up by 72% from its current level.
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