Name: Twilio

Ticker: $TWLO

Entry: $115.06

Target: $225 or trailing stop

Stop Loss: $104.99

Risk/Reward: 11:1

Fundamental Analysis Report: Twilio Inc. (TWLO)

Date: November 20, 2025
Tickers: NYSE: TWLO
Recent Earnings: Q3 2025 (Released October 30, 2025)

Executive Summary

Twilio Inc. (TWLO) has executed a significant turnaround as of Q3 2025, shifting from a growth-at-all-costs model to a balanced profile of accelerating revenue and disciplined profitability. The company reported $1.30 billion in quarterly revenue (+15% year-over-year), marking a re-acceleration fueled by high-teens growth in Messaging and mid-teens growth in Voice. Crucially, Twilio achieved GAAP profitability with $37 million in net income, reversing prior losses, while aggressively returning capital to shareholders through $349.8 million in share repurchases during the quarter.

Financial Performance: Q3 2025

Twilio's Q3 2025 results demonstrate operating leverage and a return to double-digit organic growth.

Revenue & Growth

• Total Revenue: $1.30 billion, up 15% reported and 13% organically year-over-year.
• Drivers: Growth was broad-based, with Messaging revenue growing in the high teens and Voice revenue accelerating to the mid-teens, the fastest rate in over three years.
• Customer Engagement: The platform's stickiness improved, evidenced by a Dollar-Based Net Expansion Rate (DBNE) of 109%, up from 105% in the prior year.
• Customer Base: Active Customer Accounts grew to over 392,000, a significant increase from 320,000 in Q3 2024.

Profitability & Margins

• GAAP Net Income: $37.2 million ($0.23 per diluted share), a turnaround from a net loss of $(9.7) million in Q3 2024.
• Non-GAAP Operating Income: $235 million, representing a 18.0% margin, up significantly from prior periods.
• Gross Margin Pressure: Non-GAAP gross margin contracted slightly to 50.1% (down 280 bps YoY), primarily due to $20 million in pass-through carrier fees from Verizon.
• Cash Flow: The company generated $248 million in Free Cash Flow (19% margin), demonstrating robust cash conversion.

Balance Sheet & Capital Allocation

Twilio maintains a "fortress" balance sheet, allowing it to fund acquisitions and buybacks simultaneously.

• Liquidity: As of September 30, 2025, Twilio held $2.46 billion in cash, cash equivalents, and short-term marketable securities.
• Debt: The company carries approximately $992 million in long-term debt, resulting in a net cash position of roughly $1.47 billion.
• Share Repurchases: Twilio repurchased $349.8 million of Class A common stock in Q3 2025 alone. Year-to-date repurchases total $656.7 million, representing 95% of free cash flow.
• M&A Activity: On October 30, 2025, Twilio announced the acquisition of Stytch, an identity platform for AI agents, to bolster its security and developer tools.

Valuation & Peer Comparison

Twilio's valuation reflects a "value-growth" hybrid, trading at a discount to high-growth SaaS peers but a premium to legacy telecom infrastructure.

• Price-to-Sales (P/S): Trading at approximately 3.9x TTM sales. This is significantly lower than high-growth peer Klaviyo (~7.7x), which is growing faster (32% YoY), but higher than pure-play CPaaS peer Bandwidth (~0.53x).
• Forward P/E: Approximately 22.0x forward earnings, suggesting the market is beginning to price Twilio based on earnings power rather than just revenue multiples.
• EV/EBITDA: Approximately 51.7x, reflecting high expectations for continued margin expansion.

Investment Thesis & Risks

Bull Case

1. Revenue Re-acceleration: The acceleration to 15% growth suggests Twilio has successfully navigated post-pandemic headwinds and is capturing new demand in AI voice and personalized messaging.
2. Profitability Focus: The shift to positive GAAP net income and strong free cash flow ($248M/quarter) greatly reduces financial risk and supports the share buyback program.
3. AI Optionality: The Stytch acquisition and growth in "Voice AI" customers (up nearly 60% YoY) position Twilio as a key infrastructure provider for AI agents.

Bear Case / Risks

1. Gross Margin Compression: Margins contracted to roughly 50% due to carrier fees. If carriers continue to raise prices, Twilio's ability to pass these costs on without increasing churn will be tested.
2. Stock-Based Compensation (SBC): Despite buybacks, SBC remains high at $158 million in Q3 (12.2% of revenue), which weighs on GAAP profitability and dilutes shareholders.
3. Competition: Intense competition from lower-cost CPaaS providers and vertically integrated marketing platforms (like Klaviyo) remains a threat to pricing power.

Analyst Sentiment

• Consensus: Moderate Buy / Buy.
• Price Target: Average target of ~$139, implying upside from the ~$120 trading levels of late November 2025.
• Recent Activity: Analysts at firms including Morgan Stanley, Piper Sandler, and Wells Fargo raised price targets following the Q3 earnings beat, citing the revenue acceleration and improved guidance.

Conclusion: Twilio has successfully transitioned from a speculative growth stock to a profitable, cash-generating enterprise. With $2.46B in liquidity, a stabilizing core business growing at 15%, and a shareholder-friendly capital allocation strategy, the company presents a compelling risk/reward profile for investors willing to tolerate moderate gross margin volatility.