NYSE:TWLO Stock Falls 19% After Earnings, But Fundamentals Signal Undervaluation
Shares of Twilio Inc. (NYSE:TWLO) plunged nearly 19% post-earnings, dropping toward the $103 range, after the company issued Q3 guidance that rattled investors despite strong Q2 results. Twilio reported Q2 revenue of $1.23 billion, up 13.8% year over year and 5.1% sequentially, with adjusted EPS at $1.19, a 36.7% YoY increase. Yet the market reacted to margin compression, with adjusted gross profit margins slipping to 50.7% and EBIT margin down to 14.2%, pressured by higher carrier fees and an unfavorable international mix. Verizon’s 33% increase in A2P fees from June 2025 alone created a $6 million headwind and reduced margins by 150 basis points.
Rising Revenues and Expanding Customer Base Drive NYSE:TWLO Growth
Despite margin headwinds, revenue expansion remains intact. Twilio ended Q2 with 342,000 active customers, up 10.6% YoY, while its dollar-based net expansion rate climbed to 108%, showing customers are spending more on Twilio’s platform. Communications remains the anchor of growth, with multi-year RPOs expanding and cross-selling accelerating across messaging, voice, and AI offerings. Twilio’s launch of products such as ConversationRelay, Conversational Intelligence, and WhatsApp Business Calling has broadened adoption. Voice AI revenue posted double-digit growth, helping offset messaging-related fee pressures. Management raised FY2025 organic revenue guidance to +9.5% YoY ($4.88 billion) and boosted adjusted operating income expectations to $862.5 million, reflecting confidence in execution despite volatility.
Free Cash Flow and Profitability Strengthen Balance Sheet
One of the strongest signals for NYSE:TWLO investors is free cash flow growth. Twilio generated $263 million in FCF in Q2, up 32.8% YoY, with a 21% free cash flow margin, a figure expanding 6 percentage points from Q1. For context, FCF growth outpaced revenue growth 2.4x, highlighting operational efficiency. Trailing twelve months show $751 million in levered FCF and $780.9 million in operating cash flow, reinforcing financial flexibility. Twilio holds $2.54 billion in cash against $1.1 billion in debt, giving it a current ratio of 4.91, strong liquidity, and ample capacity for buybacks or reinvestment.
Valuation and Analyst Forecasts for NYSE:TWLO
At current levels of $103.19 per share, Twilio trades at a forward P/E of 23.7x, well below the multiples seen in 2021 but still at a premium to some SaaS peers. Price-to-sales has compressed to 3.43x, compared to 4.8x industry averages, suggesting relative undervaluation. Analysts maintain a $131 average target, with the most bullish at $170, implying potential upside of more than 60%. Consensus forecasts show FY2025 EPS of $4.55 on revenue of $4.94 billion, followed by FY2026 EPS of $5.22 on revenue of $5.33 billion, representing growth rates of 14.7% EPS and 7.9% revenue. Long-term estimates project EPS reaching $6.22 by FY2027, implying nearly 50% upside to a fair value of $147.80.
Insider Transactions and Institutional Ownership in NYSE:TWLO
Tracking insider and institutional moves is critical at these levels. Over 89% of float is institutionally owned, with insiders holding about 4.2%. Short interest remains moderate at 5.4% of float, leaving limited risk of a short squeeze but signaling some skepticism after the post-earnings decline. Investors can monitor insider transactions here, which will provide clues to management’s confidence in execution after this sharp pullback.
Technical View: NYSE:TWLO Near Oversold Levels
From a technical perspective, shares are now oversold relative to historical trends. TWLO trades well below its 50-day moving average of $117.79 and its 200-day moving average of $111.89. Support levels have formed around the $90–95 range, coinciding with long-term uptrend support established since April 2025. RSI readings point to near-oversold conditions, with momentum likely to stabilize if FY2025 guidance holds. The April 2025 low in the $80s remains the ultimate downside floor, but with revised guidance trending upward, bulls may defend current levels as a new base.
Verdict on NYSE:TWLO: Buy the Correction with Caution on Margins
Twilio’s near 20% correction reflects fear rather than fundamentals. Revenue continues to grow double-digits, free cash flow margins are expanding, and customer retention metrics are improving. Margin headwinds from carrier fees are temporary, with management already raising prices and optimizing delivery costs. At $103 per share, well below its 52-week high of $151.95 and trading at only 3.4x sales, NYSE:TWLO offers an attractive risk-reward. With consensus targets clustered well above current prices, strong free cash flow, and a healthy balance sheet, the stock remains a Buy, though investors must monitor whether margin stabilization materializes by H1 2026.
