Twilio Easy Cuts NYSETWLO

Drew AngererThe biggest issue for Twilio (NYSE:TWLO) over the last couple of years were the high cost levels. The cloud communications leader has never had a problem with growing revenues and the latest news of a significant workforce reduction without a hit to revenues is a huge positive. My investment thesis is ultra bullish on the stock with an eye on whether Twilio can actually maintain revenue targets with the disruptions of cutting employees. Talent ReductionOver the last several years, Twilio has grown the revenue base dramatically while absorbing tons of additional costs via acquisitions. The company is still in major growth mode forecasting a 32% boost to revenues this year, but the company just announced the intention to trim the workforce by 11%. As highlighted in previous research, nothing was wrong with the business causing the stock to fall to $80. The company has strong growth albeit at a lower growth rate with business normalizing after a period of COVID pull forwards. The major issue with the business is that all of this growth has come without the company actually generating profits. Twilio guided to Q3'22 losses from operations of at least $60 million with a $35 million charge for the new sabbatical program. Source: Twilio Q2'22 earnings releaseThe cloud communications company has a strong platform attracting a growing customer base with 275,000 active accounts and a dollar-based net expansion rate of 123% for Q2. The integrated cloud communications suite offered by Twilio keeps growing and growing and attracting new customers along the way. The issue is that the employee base and spending keeps growing and growing right along with revenues. Twilio ended June with an employee count of 8,510. As the chart below shows, the never ending revenue growth (helped by acquisitions) was nearly matched with operating expense growth. Remember, Twilio only has 50% gross margins due the communications focus, not 80% margins like a software firm. TWLO Revenue (TTM) data by YChartsThe company had the following Q2 non-GAAP numbers:Revenues - $943 million Gross Profits - $481 million R&D - $167 million S&M - $233 million G&A - $88 million Net operating loss - $7 millionTwilio spends ~18% on R&D expenses which appears logical. What isn't logical is the company spending nearly 50% of gross profits on S&M. Twilio is spending on the sales department as if the business had high software margins. While the company had promised being profitable by 2023, the news of an 11% workforce reduction without a hit to Q3 revenue targets is very bullish. The only catch is that this restructuring plan comes out with just a couple of weeks left in the quarter. A real business impact might not hit until Q4 starting in October. The company expects to take charges of up to $90 million with a cash outlay of $55 to $70 million. The financial impact isn't big or material to a company with $4.4 billion in cash on the balance sheet.


All data is taken from the source: http://seekingalpha.com
Article Link: https://seekingalpha.com/article/4541...


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