Up 50% in January, Twilio’s Pullback Is the Time to Buy

Key Points

• Twilio's 2025 guidance is tepid relative to a high bar but forecasts another solid year, including buybacks.
• Buybacks reduced the share count by nearly 10% in 2024. 
• Analysts and institutional trends suggest this stock's uptrend will continue in 2025, and a high double-digit upside is possible. 

Twilio’s NYSE: TWLO pullback is the time to buy this stock because it offers an opportune discount in a high-quality tech-growth stock with AI and automation exposure. The stock price rose by 50% in January, extending a trend that began in 2024 and was driven by reinvigorated growth and accelerating results. 

Although the FQ4 results and Q1 guidance are tepid relative to the expectations, they align with the trends and the bar was set high. The worst that can be expected is a stock price reset followed by higher prices later in the year. Because the company’s performance includes robust cash flow, healthy financial condition, and aggressive share repurchases, the rebound could come quickly, and fresh long-term highs could be set before mid-year. 

Twilio: More Than a Customer Engagement Platform 

Twilio is a customer engagement platform, but more so because it provides developer tools allowing businesses to create and manage custom communications applications. The Q4 results were tepid relative to expectations, but the 11% growth is 100% organic, driven by a 6.5% gain in client count and deepening penetration. More importantly, growth is accelerating compared to last quarter and year, with year-over-year acceleration expected in 2025. Regarding penetration, the company’s net expansion rate, AKA the net retention rate, also accelerated, rising by 400 bps to 106%, indicating increased leverage and potential for long-term growth. 

“Customers like MarketBeat are able to benefit from Twilio's streamlined approach to development on a single messaging API and our universal template management system,” said Twilio CEO Khozema Shipchandler. A MarketBeat spokesperson added that Twilio excels in its services. 

Margin news is mixed but aligns with the long-term outlook for sustained growth and improving profitability. The company’s margin was slightly weaker than expected, impacted by a bad debt write-off, leaving the GAAP and adjusted EPS below forecasts. However, the company recorded its first quarter of GAAP profits, GAAP profitability is expected to improve, and adjusted income from ops rose at a leveraged pace compared to revenue, 14%. The critical details are that cash flow and FCF were hit hardest by the write-off, which is not expected to be repeated soon and has little impact on the company’s financial health or capital return. 

Likewise, the guidance is solid, if less than analysts had hoped. The company reiterated its outlook for the year while initiating below-consensus guidance for Q1. The takeaway is that Q1 revenue is expected to grow at a high-single-digit pace, which is expected to be sustained through the year’s end. The guidance may be cautious due to client growth, penetration, and AI/automation trends, which are all positive. 

Twilio's Balance Sheet, Cash Flow, and Capital Return are Robust

Twilio’s cash flow and balance sheet allowed aggressive share repurchases in 2024 and will sustain them in 2025. The share count was reduced by nearly 10% for the year, completing the previous $3 billion authorization. A new $2 billion authorization ensures the count will decline in 2025, and other sell-side activity is bullish. 

Analyst and institutional trends support the updraft in the stock price, including increased coverage, a rising price target, positive revisions after the Q1 guidance was released, and institutions buying on balance. The institutional activity is noteworthy because it spiked in Q1 2025 as profit-takers sold into the rally, but more shares were accumulated than sold.

Twilio’s stock price pullback is a buying opportunity because of the technical setup and the results, which do not significantly alter the outlook. The technical setup shows a market in reversal; the price pullback is an expected test for support that the market will likely confirm. The critical support levels are near $135, $125, and $95.