Twilio Q4 Earnings Preview: What to Expect After the Preannouncement

Twilio (NASDAQ: TWLO) is set to report fourth-quarter earnings after the market closes today, but much of the suspense has already been removed following the company’s pre-announced results on January 23. Twilio preannounced Q4 revenue growth of 11% year-over-year, surpassing the 8% consensus estimate at the time. The company also guided for adjusted income from operations to exceed the high end of its prior forecast, reinforcing its commitment to improving profitability.

In addition to its strong preliminary results, Twilio used its Investor Day presentation to unveil a long-term operating model focused on double-digit growth, increased free cash flow, and higher margins. Management now targets an adjusted operating margin of 21-22% by 2027, which is well above the 16.1% margin reported last quarter and ahead of Wall Street expectations. The company also authorized a $2 billion share buyback program, signaling confidence in its ability to generate cash flow and return capital to shareholders.

With the preannouncement setting clear expectations for today’s earnings release, investors will focus on Twilio’s guidance for 2025 and beyond, as well as key strategic updates around product innovation, AI integration, and margin expansion.

Analyst Reactions: Bullish Sentiment After the Preannouncement

Twilio’s preliminary results and Investor Day presentation led to a wave of price target increases and rating upgrades from analysts who now see a stronger long-term growth trajectory for the company.

- Needham raised its price target from $91 to $165, citing increased investor confidence following the transparent guidance at the Investor Day. The firm sees double-digit revenue growth as achievable, driven by AI initiatives, go-to-market transformation, and margin expansion.

- Goldman Sachs upgraded Twilio to Buy and increased its price target to $185 from $77, stating that cost reductions and efficiency measures have positioned the company for an inflection point in both revenue and free cash flow.

- Scotiabank boosted its price target from $90 to $160, emphasizing Twilio’s strong margin targets for 2027 and the additional $2 billion in share repurchases as catalysts for continued upside.

- Mizuho lifted its price target to $150 from $140, highlighting momentum in core products, AI-driven innovation, and the potential for "beat and raise" quarters ahead.

While some analysts remain cautious given Twilio’s sharp stock rally over the past six months, most agree that the company’s focus on profitability and product innovation is beginning to pay off.

Key Drivers and Storylines to Watch

1. Updated Guidance for 2025 and Beyond

- Twilio has already introduced initial 2025 revenue growth guidance of 7-8%, but investors will want more detail on whether double-digit growth is achievable sooner.

- Analysts expect management to reiterate its commitment to margin expansion and provide more clarity on Q2 2025 breakeven targets for the Segment business.

2. AI and Product Innovation

- Twilio’s AI-driven customer engagement solutions and integration of Segment with its core Communications portfolio are seen as key growth drivers.

- Needham and Mizuho believe these initiatives will support higher revenue per customer and improve cross-sell opportunities.

- Any new AI product updates or major customer wins will be closely watched.

3. Margin Expansion and Cost Controls

- Twilio’s 21-22% adjusted operating margin target for 2027 is a major focus for investors.

- The company has already streamlined R&D investments to improve efficiency, but analysts will look for further updates on cost discipline.

- Goldman Sachs sees Twilio’s ongoing efficiency measures as a key catalyst for continued free cash flow growth.

4. Competitive Landscape and Market Positioning

- Twilio has outperformed the IGV software index by 45% since its Q3 earnings report, raising questions about whether the stock has priced in too much optimism.

- RBC Capital notes that while the commitment to free cash flow is encouraging, much of the low-hanging fruit has already been captured.

- Twilio needs to demonstrate continued customer adoption and differentiation from competitors to sustain its rally.

5. Share Buybacks and Capital Allocation

- The newly authorized $2 billion share buyback program was a major positive surprise in the preannouncement.

- Analysts will be looking for details on the pace and scale of buybacks over the next year.

- This move indicates management’s confidence in Twilio’s future cash flow generation, a key factor in sustaining investor enthusiasm.

Market Expectations and Potential Reactions

Twilio shares jumped 21% in premarket trading following the preannouncement, and the stock has held onto most of those gains. Heading into earnings, the question is whether the guidance and strategic updates will be strong enough to justify further upside.

The stock has gained 91% over the past six months, and while many analysts remain bullish, RBC Capital warns that expectations may already be priced in. If Twilio meets or slightly beats expectations without raising guidance, the stock could see a "sell the news" reaction.

On the other hand, if management raises its long-term growth forecast, announces new AI partnerships, or provides strong Q1 guidance, the stock could continue its upward momentum.

Conclusion: A Critical Report for Twilio’s Growth Narrative

Twilio’s preannouncement on January 23 provided clear revenue and margin expectations, taking much of the uncertainty out of today’s earnings report. The key focus will be on updated guidance for 2024, as well as management’s vision for accelerating revenue growth and improving profitability over the next three years.

Analysts widely agree that Twilio’s cost-cutting initiatives, AI-driven innovation, and commitment to free cash flow have created a strong foundation for long-term growth. However, with the stock already up significantly, it will take a meaningful beat-and-raise quarter or major strategic updates to push shares even higher.

With expectations high, Twilio’s management will need to deliver more than just in-line results to maintain investor enthusiasm. The stage is set for a pivotal earnings report, and all eyes will be on whether the company can convert its strong long-term vision into tangible short-term gains.