By Sam Boughedda
Twilio (NYSE:TWLO) was double downgraded to Underperform from Buy at BofA on Wednesday, with the firm also slashing its price target on the stock to $85 from $175.
Twilio shares are down over 6% at the time of writing.
BofA analysts told investors in a note that the downgrade is based on three reasons, including its recent DevSecOps survey, which showed that 52% of respondents expect to spend the same or less with Twilio in 2023, its latest channel checks indicating greater competition, and pricing pressure in CPaaS and the risk to consensus revenue forecast.
"We recently conducted a DevSecOps survey (Link to Survey) , where we surveyed 348 users of DevSecOps tools to formulate a real time view into current demand trends, spending intentions and strategies. Usage/spending intentions with TWLO are slipping as 52% of respondents expect to spend less on the platform in 2023 compared to 2022. Our survey supports a more cautious view of TWLO's usage-based model in the short term as enterprises reduce discretionary spending or seek lower cost alternatives," wrote the analysts.
On the firm's channel checks, they added that, over the past few weeks, they spoke with several of Twilio's key partners to ask about product differentiation, market position, macro environment, demand trends, and competition. They said the feedback suggests that competitive pricing pressure may be intensifying with Twilio priced at a premium, enterprise market sales cycles are elongated, and appetite for CPaaS adoption is strong. However, usage/spending is trending lower.
"We believe there is downside risk to FY23 consensus revenue, which has not kept pace with the deteriorating economic environment. FY23 consensus revenue has fallen just -1.8% over the last six months, which does not fully reflect macroeconomic risks to TLWO's usage-based model, in our view. We have lowered our FY23 revenue forecast from $4,930mn to $4,743mn, which is now 3% below consensus," the analysts added.