Twilio Earnings: A Strong Close to the Year as Communications Unit Buoys Results

Narrow-moat Twilio reported strong fourth-quarter results with both revenue and profitability handily exceeding our expectations. Guidance for the first quarter is just below our revenue expectations, but easily surpasses our profitability expectations. We think the market is overreacting to the disappointing revenue guidance and not fully appreciating near-term profitability hindering measures taken now in order to lower overall stock-based compensation over the long term. When considering prudent operating decisions that should increase future profit margins, the continued momentum of its communications unit, and the time value of money, we raise our fair value estimate to $73 per share from $64 and view shares as fairly valued.