Why Twilio Stock Exploded Higher on Friday
Key Points
Twilio beat on sales and crushed on earnings last night.
Twilio raised guidance for full-year sales, earnings, and free cash flow.
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Twilio (NYSE: TWLO) stock rocketed 18.5% through 11:40 a.m. ET Friday after the communications software company reported a big earnings beat last night.
Analysts only expected Twilio to earn $1.07 per share on $1.25 billion in revenue in Q3, but Twilio reported $1.25 per share in profit instead, and sales of $1.3 billion.
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Twilio Q3 earnings
Revenue surged 15% year over year as Twilio "saw broad-based strength across customer segments, ranging from start-ups to enterprises to ISVs," as CEO Khozema Shipchandler announced. Non-GAAP earnings climbed 22% year over year, and earnings as calculated according to generally accepted accounting principles (GAAP) flipped from a $4.9 million loss (a year ago) to a $40.9 million profit this time around.
Even that big number pales in comparison to the amount of cash profit Twilio produced in the quarter, however. Free cash flow at the software company rushed ahead more than 30%, landing at $247.5 million.
Is Twilio stock a buy?
Twilio isn't looking for quite that fantastic a result in its upcoming Q4 -- but the quarter should still be good enough to keep the momentum going. Twilio's raising guidance and forecasting 12%-plus growth in Q4, and predicting it will end this year with between $920 million and $930 million in positive free cash flow -- up as much as $45 million from previous guidance.
Granted, Twilio costs $20.4 billion in market cap, so that makes for a not-exactly cheap price-to-free cash flow ratio of about 22 times. Still, with analysts polled by S&P Global Market Intelligence predicting Twilio can grow earnings 41% annually over the next five years, it's probably cheap enough to make Twilio stock a buy.
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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Twilio. The Motley Fool has a disclosure policy.
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