Stock Story -
What Happened: Shares of cloud communications infrastructure company Twilio (NYSE:TWLO) fell 5.3% in the afternoon session after major indices declined, with the Nasdaq down 3%, while the S&P 500 fell by 1.7% following weaker-than-expected earnings from Alphabet (NASDAQ:GOOGL) (YouTube Advertising revenue missed estimates) and Tesla (NASDAQ:TSLA) (7% drop in auto revenue).
In recent weeks, tech giants, including Microsoft (NASDAQ:MSFT), Alphabet, Meta (NASDAQ:META), and Apple (NASDAQ:AAPL), have shed some of their year-to-date gains as a new market narrative—in favor of small-caps stocks—gains some momentum following the growing conviction that the Fed will start to cut rates in the second half of the year. Notably, the Russell 2000 index has gained 9% since the beginning of the month. The sentiment also benefitted from improved inflation prints last month, as the headline numbers edged closer to the Fed's 2% target.
Overall, the shift suggests investors are finding more reasons to hold positions in risk assets, especially small caps that tend to be more volatile.
The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks. Is now the time to buy Twilio? Find out by reading the original article on StockStory, it's free.
What is the market telling us: Twilio's shares are very volatile and over the last year have had 9 moves greater than 5%. In context of that, today's move is indicating the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The biggest move we wrote about over the last year was 5 months ago, when the stock dropped 15.5% on the news that the company reported fourth-quarter results and provided revenue guidance for the next quarter, which missed analysts' expectations. Twilio observed headwinds to revenue growth in Q4'2023 from customers in the crypto industry and expects similar headwinds in Q1'2024.
Also, the company anticipated a sequential revenue decline in Q1'2024 partly driven by "elevated seasonal activity on our platform in Q4, which we do not expect to recur in Q1." In addition, its customer growth decelerated during the quarter. On the other hand, revenue and EPS came in ahead of consensus estimates.
Overall, this was a mediocre quarter for Twilio.
Following the results, Northland Capital Markets downgraded the stock's rating from Outperform (Buy) to Market Perform (Hold).
Twilio is down 20% since the beginning of the year, and at $56.89 per share it is trading 26.9% below its 52-week high of $77.85 from December 2023. Investors who bought $1,000 worth of Twilio's shares 5 years ago would now be looking at an investment worth $385.34.
