Twilio (TWLO) To Report Q2 Earnings: What's In The Offing?

Twilio Inc. (NYSE:TWLO) is slated to release second-quarter 2019 results on Jul 31.

The company’s earnings beat the Zacks Consensus Estimate in three of the trailing four quarters and matched the same once, the average positive surprise being 200%.

In the first quarter, the company delivered non-GAAP earnings of 5 cents per share, which topped the Zacks Consensus Estimate of a penny and also reversed the company’s loss of 4 cents in the year-ago quarter.

Further, the company’s first-quarter revenues soared 81% year over year to $233.1 million and also surpassed the Zacks Consensus Estimate of $224 million.

What to Expect in Q2

For the second quarter of 2019, Twilio anticipates revenues between $262 million and $265 million. Base revenues are estimated within $252-$254 million. The company forecasts non-GAAP earnings per share to be 2-3 cents.

The Zacks Consensus Estimate for second-quarter revenues is currently pegged at $263.5 million, indicating almost 78.4% surge from the year-ago reported figure. Moreover, the consensus mark for earnings has been steady at 2 cents per share over the past 60 days.

Factors at Play

Twilio’s second-quarter results are likely to be driven by strong customer growth and expansion rates. Moreover, solid strength in the company’s core voice and messaging products coupled with the recent addition of email will remain a tailwind. Growing number of Twilio Flex deals are anticipated to provide an added impetus to the company’s upcoming earnings release.

Additionally, the company’s focus on cross-selling its core products to SendGrid customer base and vice-versa is an upside. The SendGrid buyout, which had a favorable impact on the top and the bottom line in the last reported quarter, is expected to remain accretive in the second quarter as well.

Further, with new products gaining more traction, dollar-based net expansion rate, which was 146% in the last reported quarter, will continue to be a major revenue driver in the to-be-reported quarter.

The company’s initiatives on improving penetration within the enterprise and internationally are expected to act as a key catalyst in the period to be reported.

However, although higher margin revenues from SendGrid are a boon, Twilio’s rising investment in lower-margin international regions is an overhang on its profitability.

Further, gross margins are likely to be affected by the implementation of Verizon (NYSE:VZ)'s A2P fee. Management anticipates the metric to induce a 50-bps drag in the second quarter and a rough 100-bps contraction in the overall gross margin thereafter.

Twilio Inc. Price and EPS Surprise

Twilio Inc. price-eps-surprise | Twilio Inc. Quote

What Our Model Says

The proven Zacks model clearly shows that a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has maximum chances of beating estimates if it also has a positive Earnings ESP. Zacks Rank #4 (Sell) or 5 (Strong Sell) stocks are best avoided. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Twillio currently carries a Zacks Rank #3, which increases the predictive power of ESP. However, its Earnings ESP of 0.00% makes surprise prediction difficult.

Stocks to Consider

Here are some stocks worth considering as our model shows that these have the right combination of elements to beat on earnings in their upcoming releases:

Ciena Corporation (NYSE:CIEN) has an Earnings ESP of +5.26% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

CGI Group, Inc. (NYSE:GIB) has an Earnings ESP of +1.27% and a Zacks Rank of 2.

GTT Communications, Inc. (NYSE:GTT) has an Earnings ESP of +144.44% and a Zacks Rank of 3.

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