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Class A shares of Twilio (NYSE:TWLO) on Thursday slumped as much as 15.5%, as analysts focused on its weak current quarter guidance and expressed concerns over its operational review of one of its units.
TWLO stock was last down 14.8% to $61.55 in afternoon trade.
Twilio (TWLO) after hours on Wednesday reported Q4 2023 adjusted earnings of 86 cents per share on revenue of $1.08B. Analysts had been expecting the company to earn 58 cents per share on revenue of $1.04B. Its Q1 2024 revenue guidance of $1.025B to $1.035B came in below consensus.
San Francisco, Calif.-based Twilio (TWLO) provides a range of services involving cloud communications, including a customer data platform and application programming interfaces to support centralized messaging. The company also offers user verification solutions.
The company reports results in two units, communications and segment. On Wednesday, along with the quarterly results, the company said that management was undertaking an operational review of the latter unit. Twilio's (TWLO) segment business was born of its $3.2B acquisition of customer data infrastructure firm Segment in 2020. It is now a customer data platform. TWLO said it recorded a $285.7M impairment charge related to the acquisition in Q4.
"Our Twilio Segment business, formerly Twilio Data & Applications, while still strategically important to Twilio (TWLO), continues to underperform. Although we drove sequential bookings improvement in Q4, growth is not yet accelerating up to our expectations," the company's top boss Khozema Shipchandler said on an earnings conference call.
"Over the past five weeks, I've been working with the team to conduct an extensive operational review of Segment, and this work is ongoing. We plan to do a read-out of these results in March at which time I'll be ready to share our findings, path forward, and any changes to Twilio's (TWLO) financial framework as a result," Shipchandler added.
Twilio (TWLO) last year also faced activist investor pressure from Legion Partners and Anson Funds, with the funds saying that they would like the company to sell off either the segment unit or the whole firm.
Northland downgraded Twilio (TWLO) stock in response to the announcement about the operational review.
"If the review leads to a unit sale, that could minimize Twilio's (TWLO) AI strategy in Northland's view," the brokerage said, moving its rating on the stock to Market Perform from Outperform.
RBC Capital maintained its Underperform rating on the stock, noting that the new disclosures around the segment unit suggested "business challenges."
"While our checks did pick up weakness in Segment, we were surprised to see the numbers: 1) Segment (plus Engage) is ~$300MM in ARR, while we had estimated the business was ~$400MM in ARR; 2) Segment is only growing 4% YoY, significantly lower than expected," RBC analyst Rishi Jaluria said.
"Is a Segment divestment in the cards? Management seemed to dismiss the idea on the earnings call (although it is likely an option, in our view). While we understand the strategic rationale for Segment and that it underpins Twilio's "CustomerAI" strategy, given growing competition (especially from Salesforce (CRM) and Adobe (ADBE)), we think Twilio (TWLO) should consider divesting the asset as part of a 'shrink to grow' strategy," Jaluria added.
JMP Securities maintained its Market Perform rating on TWLO stock.
"We think the company may divest from Segment and think such a move would be a net positive for several reasons, including conflict between Segment and the Communications business and the rapid evolution of the (customer data platform) industry," JMP analyst Patrick Walravens said.
"From a strategic point of view, we see several possible acquirers for Segment including Amazon (AMZN), Salesforce (CRM), Adobe (ADBE), Snowflake (SNOW), and private equity; and, on the flip side, Twilio (TWLO) itself might make an attractive acquisition target as suggested by reports of privately held company MessageBird in talks to raise money for a 'longshot' bid," Walravens added.
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