Twilio Posts Good Q2 With Minimal Macro Impact but Profitability Remains Elusive; FVE Cut to $140

We are lowering our fair value estimate for Twilio to $140 per share, from $170 previously after the company reported strong results but offered a muted outlook for the third quarter. Like for most of our coverage, we view the stock as attractive. Demand remains robust, with limited pockets of weakness and no significant signs of a recessionary environment. While profitability within the quarter was better than we anticipated, it is worse than we expected for the third quarter. Persistently strong messaging is a great sign for new business growth but leaves us more cautious on margins over the medium term. We see gross margins expanding over time as Flex, Engage, and Segment grow within the mix, but we ultimately expect Twilio to offer a lower margin profile than many other enterprise companies. To its credit, management is increasingly focused on profitability and reiterated its goal for positive non-GAAP operating margins in 2023.