Good Quarter for Twilio but Macro Pressure Mounting; Lowered Outlook; FVE Cut to $95

Narrow-moat Twilio reported third-quarter results in conjunction with its analyst day. Results were generally solid from revenue and profitability perspectives, while the fourth-quarter outlook was meaningfully below our revenue estimate and below our profitability estimate, as well. Between macro pressures and lower-than-expected guidance, we are cutting our fair value estimate to $95 per share, from $140 previously. We see cracks in the thesis that are certainly fixable, including the recent shut down portions of Zipwhip after acquiring the company for $840 million in 2021; a material headcount reduction that seemingly has no impact on previously issued profitability guidance for 2023; refusing political campaign text messaging, which normally provides a revenue bump in the fall; a lack of profitability despite what will likely be about $3.8 billion in revenue this year; and changes in the company’s go-to-market motion. Despite the upside our model shows for the stock, we would avoid it for now given the heightened near-term risk.