Business

Twilio stock should be sold before earnings are announced, says BofA


Shares of Twilio Inc. fell sharply on Wednesday after BofA Securities’ Michael Funk took a stand against the client communications software company, turning down from gains just a day before its planned third-quarter earnings. Father.

Funk downgraded Twilio two notches, for a worse performance than a buy, making him the only bearish analyst among the 36 stocks surveyed by FactSet. Funk also lowered its stock price target to 51%, from $175 to $85.

Stock
TWLO,
-5.50%

down 7.0% in afternoon trading, while the Nasdaq Composite
COMP,
+ 0.15%

down 1.1% and the S&P 500
SPX,
+ 0.42%

down 0.6%.

Funk gave three main reasons for the sudden turn:

First, a recent survey of 348 users of DevSecOps, or security tools, showed that usage and spending with Twilio is declining, as 52% of survey respondents expect ​will spend less on the platform in 2023 than in 2022.

“Our survey favors a more conservative view of [Twilio’s] Funk writes in a note to clients in the short term as businesses reduce discretionary spending or look for lower-cost alternatives.

Second, after speaking with some of Twilio’s “key” partners, Funk said it looks like “competitive price pressure may be building,” with Twilio prices at a premium. In addition, the sales cycle in the marketplace for businesses has lengthened, and while demand for CPaaS (communication platform as a service) is strong, usage and spending is growing. lower trend.

And third, the consensus analyst estimate for fiscal 2023 revenue has fallen only 1.8% over the past six months, but Funk believes that doesn’t fully reflect the macroeconomic risks to Twilio’s usage-based model.

“We believe there is downside risk to FY23 consensus revenue, which has failed to keep pace with the deteriorating economic environment,” Funk wrote.

He cut his 2023 revenue forecast to $4.74 billion from $4.93 billion, compared with FactSet consensus of $4.91 billion.

Twilio is expected to report third-quarter results after the closing bell on Thursday. Analysts surveyed by FactSet expect the company to average an adjusted loss per share of 39 cents from a profit of one cent per share.

Revenue is expected to grow 31.5% to $973.5 million.

For Q4, FactSet consensus for a loss per share of 12 cents and revenue of $1.07 billion.

To date, shares of Twilio are down 73.5% while the Nasdaq Composite is down 31.1% and the S&P 500 is down 19.6%.

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