Why Twilio Stock Just Crashed 16.5%

Twilio (NYSE: TWLO) stock tumbled 16.5% through 10:55 a.m. ET Friday after a mixed earnings report last night.

Heading into Q4 2024, analysts forecast Twilio would earn $1.03 per share, adjusted for one-time items, on sales of $1.18 billion. Twilio barely beat the sales target, reporting $1.19 billion, and barely missed the earnings target, reporting $1 per share, even.

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Twilio Q4 earnings

Sales grew a respectable 11% at Twilio in Q4, better than the company's 7% sales growth over all of 2024. The news on earnings, however, wasn't as good.

Twilio didn't only report weaker Q4 adjusted earnings than expected, you see. It didn't earn anything at all, at least according to generally accepted accounting principles (GAAP). Instead, its GAAP results were an $0.08-per-share loss for the quarter, and losses of $0.66 per share for the year. Amid all the bad news, however, there was some good news:

Twilio is generating gobs of cash.

Is Twilio stock a sell?

Free cash flow for the full year amounted to $657 million. Admittedly, Q4 was a bit weak in this regard, with the communications software company generating only $93 million in FCF, and -- also admittedly -- this was less than half the cash Twilio generated in Q4. Still, for the year, Twilio grew its cash generation by 75%, which is a pretty impressive number.

Investors today seem shaken by the Q4 dropoff, however. Plus, Twilio warned that Q1 2025 may come in light, with both sales and adjusted earnings below analyst forecasts. Still, management sees free cash flow growing to between $825 million and $850 million through the end of 2025. At the top of that range, this implies 29% FCF growth. And after today's sell-off, Twilio stock costs only about 29 times free cash flow, after all.

That seems a fair price to me, assuming Twilio can hit its target this year. Investors might want to look at today's sell-off not as a disaster, but as a chance to buy the dip.

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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.