What Happened?
Shares of cloud communications infrastructure company Twilio (NYSE: TWLO) fell 18.3% in the afternoon session after the company reported second-quarter results that beat expectations but provided a weaker-than-expected earnings forecast for the third quarter. The cloud communications company reported second-quarter adjusted earnings of $1.19 per share on revenue of $1.23 billion, surpassing analyst expectations. However, this was overshadowed by a disappointing profit forecast for the upcoming period. For the third quarter, Twilio projected adjusted earnings of approximately $1.04 per share, below the consensus estimate of $1.15. This weaker profit guidance suggested potential pressure on profitability, which was also reflected in a year-over-year decline in its gross profit margin for the second quarter. Concerns about slowing demand were further highlighted by analyst projections for decelerating revenue growth over the next 12 months, contributing to the negative investor sentiment.
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What Is The Market Telling Us
Twilio’s shares are quite volatile and have had 19 moves greater than 5% over the last year. But moves this big are rare even for Twilio and indicate this news significantly impacted the market’s perception of the business.
The previous big move we wrote about was 4 days ago when the stock gained 3.1% on the news that the Software as a Service (SaaS) sector rebounded following the sell-off in the previous trading session as a weaker-than-expected U.S. jobs report increased the probability of a Federal Reserve interest rate cut. The July Nonfarm Payrolls (NFP) report showed the U.S. economy added only 73,000 jobs, significantly below the 110,000 forecast. This, combined with downward revisions for May and June, signaled a cooling labor market to investors. In response, market expectations for a September interest rate cut by the Federal Reserve surged from roughly 40% to over 80%. A potential rate cut is generally favorable for growth sectors like technology and SaaS, as lower rates can increase the present value of their future earnings, boosting stock valuations.
Twilio is down 8.9% since the beginning of the year, and at $99.34 per share, it is trading 33% below its 52-week high of $148.35 from January 2025. Investors who bought $1,000 worth of Twilio’s shares 5 years ago would now be looking at an investment worth $397.32.
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