Twilio Inc. shares soared Friday after the cloud communications company reported record third-quarter results that surpassed Wall Street expectations and projected a strong fourth quarter.
The upbeat performance and guidance renewed investor confidence in the company’s growth trajectory after a challenging period of slowing margins earlier this year.
Record revenue and earnings boost investor confidence
Twilio’s stock jumped 20% to $136.03 following the report, extending its year-to-date gains to 24%.
The company delivered adjusted earnings of $1.25 per share, exceeding both its internal forecast and analysts’ consensus estimate of $1.08.
Revenue for the quarter totaled $1.3 billion, up 15% from a year earlier and above expectations of $1.25 billion, marking the company’s highest-ever quarterly profit and sales.
The San Francisco-based firm also provided an optimistic outlook for the fourth quarter, forecasting revenue between $1.31 billion and $1.32 billion, ahead of analysts’ estimates of $1.28 billion.
Adjusted operating income is expected to reach $235 million at the midpoint, compared with Wall Street’s forecast of $222 million.
“We saw broad-based strength across customer segments, ranging from startups to enterprises to independent software vendors,” said CEO Khozema Shipchandler.
The results signal a strong rebound from earlier investor concerns about growth stagnation.
After the company’s second-quarter earnings in August, shares had declined on fears of decelerating revenue and narrowing margins.
Margins tighten but growth accelerates across key segments
Despite the strong top-line results, Twilio’s gross margins continued to contract.
Adjusted gross margin declined to 50.1% from 50.7% in the prior quarter and 52.9% a year earlier.
However, the company’s rapid revenue expansion — its sixth consecutive quarter of accelerating growth and fourth straight quarter of double-digit gains — helped offset margin pressures.
Analysts attributed the growth to the success of Twilio’s expanding voice and software add-on businesses.
Voice solutions, now enhanced with artificial intelligence capabilities, posted mid-teens growth, marking their fastest pace in more than three years.
Meanwhile, revenue from software add-ons — which include analytics and customer engagement tools — also accelerated, contributing to stronger net retention.
Oppenheimer analysts highlighted the company’s “platform strategy” and operational discipline.
“With voice accelerating to mid-teens growth and software add-ons contributing to net retention, Twilio is demonstrating the power of its platform strategy while maintaining operating discipline,” wrote lead analyst Ittai Kidron.
The firm reiterated its Outperform rating and raised its price target to $145 from $135.
Analysts Raise Price Targets Amid AI and Self-Serve Growth
Twilio’s ongoing investments in artificial intelligence and automation are beginning to show tangible results.
The company’s ConversationRelay call volume — a key AI-driven communications product — tripled quarter-over-quarter, underscoring growing adoption across clients.
Stifel analysts also lifted their price target on Twilio shares to $120 from $110 while maintaining a Hold rating, citing strong performance in self-serve improvements, voice services, and AI initiatives.
The company’s self-serve channel, a focus area since early 2024, grew “well over 20%” during the quarter.
Twilio also continued its share repurchase program, buying back nearly $350 million of stock in the quarter.
The company now expects fiscal 2025 revenue growth above prior estimates and improved free cash flow, though it trimmed its full-year operating income outlook due to continued investment in strategic growth areas.
The record quarter, coupled with rising optimism around AI integration, has repositioned Twilio as a key contender in the cloud communications and software sector heading into 2025.
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