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Specialized in communication platforms API (Application Programming Interface), Twilio (NYSE:TWLO) allows companies such as carpooling facilitators Uber (NYSE:UBER) to create custom automated messaging channels. However, TWLO stock was only communicating pain on Friday, despite the underlying company posting a second-quarter high and low. Analysts took a dim view of Twilio’s third-quarter outlook, seeing it as a broader warning of mounting economic pressures.
On the surface, the headline print was meant to bode well for TWLO stock. For the second quarter, the technology company reported revenue of $943.4 million, up 41% from the year-ago quarter. Additionally, covering analysts were forecasting sales of $918.2 million. For earnings per share, Twilio recorded a loss of 11 cents excluding certain items. However, that compares favorably to the consensus target of a 20-cent EPS loss.
Nonetheless, TWLO stock fell 14% heading into the afternoon session. On the one hand, analysts viewed Twilio’s Q3 revenue forecast as discouraging. Although the company is expecting 31% year-over-year (YOY) growth to $970 million, analysts were expecting an average of $975.6 million. If that wasn’t enough, Twilio was forecasting an EPS loss (minus certain items) of 43 cents, compared to the consensus target of an EPS loss of 11 cents, according to data compiled by Bloomberg.
“We haven’t yet seen any large-scale impacts on our business due to the macro economy,” Twilio CEO Jeff Lawson said in a recent interview. “We are bracing for a variety of outcomes that could occur, but we are cautiously optimistic.”
TWLO Stock and the Disturbing Economic Barometer
Although Lawson is showing courage, pointing out that Twilio is sticking to its forecast for the full year 2023, with profitability on an operating basis despite the economic uncertainty, several analysts and investors remain skeptical. Year-to-date, TWLO stock is down about 68%.
According to Morgan Stanley’s Meta Marshall, Twilio is sending mixed messages with its Q2 disclosure. By Bloomberg’s description, while “revenue growth exceeded expectations, two indicators of customer demand missed analysts’ projections. The company added 7,000 net new customers, below the 7,313 expected, while the dollar net expansion rate, which indicates growth among existing customers, was 123%. Analysts estimated a rate of 127.3%.
Additionally, Stifel analyst J. Parker Lane downgraded TWLO stock from “buy” to “hold,” while significantly reducing the price target by 55%. In a research note, Lane primarily cited a “softer pace of expansion” and “expected decline in organic revenue” as near-term risk indicators in an uncertain macro environment.
Since Twilio’s communication API technology underpins the largely automated user interface and experience between popular companies, such as Lyft (NASDAQ:LYFT) and DoorDash (NYSE:DASH) — and their customers, TWLO stock is essentially a barometer of the digital economy. In other words, if Twilio suffers from lower revenue forecasts, the broader connectivity ecosystem could be at risk of deflation.
why is it important
The TWLO stock also has significant implications for the cryptocurrency industry via the underlying Authy application, which is a two-factor authentication (2FA) service. Given the cyber threats facing the broader blockchain industry, Twilio enjoys organic downwind advantages by providing robust security measures.
While Twilio said the loss of demand from the crypto space hasn’t had a significant impact on sales, if interest in digital assets wanes, it could present another challenge for the beleaguered company. Therefore, investors should be extremely careful in their approach to TWLO stocks.
As of the date of publication, Josh Enomoto had no position (directly or indirectly) in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to InvestorPlace.com Publication guidelines.