Twilio Is Ridiculously Oversold After a Mostly Positive Report

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When companies offer up modest guidance, sometimes they are unjustly punished by investors. This scenario seems to be the case with cloud-communications firm Twilio (NYSE:TWLO), as the selling pressure on TWLO stock ramped up soon after the company’s earnings release.

The Twilio (TWLO) logo is displayed over a white background on a smartphone screen.

Source: rafapress / Shutterstock.com

Frankly, it’s strange to witness Wall Street suddenly beating up on Twilio, of all companies. As you may recall, Twilio was a darling of the markets last year as the Covid-19 pandemic accelerated demand for the company’s software-as-a-service (SaaS) tools.

Yet, the tide of sentiment can turn quickly. As Twilio issued its most recent quarterly report, investors were hit with a double-whammy: seemingly underwhelming forward guidance and the departure of a valuable executive.

These only constitute part of the quarterly report, though. Within the data, one can also find reasons to stay the course with Twilio — and possibly even build a bigger stake.

A Closer Look at TWLO Stock

As I alluded to earlier, TWLO stock was in rally mode soon after the onset of Covid-19. After falling to the $72 level in March of last year, the Twilio share price catapulted as high as $338.50 by the end of 2020.

That sharp rally persisted into 2021 as the stock topped out above $435 in early February.

Unfortunately, TWLO stock fell out of favor after that. It hasn’t recovered yet, as the share price sank below $300 not long ago. There does seem to be a support level in play, though. In mid-May, the stock bounced off of $281.

In the past few days, TWLO stock was detected at that same level. Therefore, it’s possible some buyers could soon rush in again, thereby putting positive pressure on the share price.

Losing an Executive, and Some Investors

So, what was so terrible about Twilio’s third-quarter 2021 report that it accelerated a selloff?

First of all, it was revealed that George Hu will resign as the company’s chief operating officer. His replacement will be Khozema Shipchandler, Twilio’s chief financial officer.

It’s been suggested that Hu contributed to Twilio improving from a run rate of $300 million five years ago to nearly $3 billion currently. Still, changes at the executive level are inevitable. Besides, the transition ought to be smooth, as Shipchandler already occupied an important position with Twilio.

On the fiscal front, Twilio provided fourth-quarter 2021 revenue guidance of $760 million to $770 million. That range was actually higher than Wall Street’s estimate of roughly $745 million.

However, the experts were also expecting a fourth-quarter earnings loss of 10 cents per share. Twilio’s guidance called for a worse outcome — specifically, a fourth-quarter earnings loss of 23 cents to 26 cents per share.

Twilio Is Being Punished for Honesty

It’s funny how investors will sometimes beat a stock down simply because the company’s management issued a less-than-optimistic forward earnings prediction.

Granted, it’s frustrating when a company is punished for being honest. Yet this could set the company up for an easy earnings beat the next time around. After all, low expectations can lead to positive surprises.

Switching back to the here-and-now, Twilio’s third-quarter 2021 results weren’t terrible. The company reported an adjusted quarterly profit of 1 cent per share, for example. That’s certainly better than Wall Street’s prediction of an adjusted loss of 14 cents per share.

Also, Twilio reported revenues of $740.2 million, up 65% year-over-year. In addition, the company had more than 250,000 active customer accounts at the end of 2021’s third quarter. A year prior to that, Twilio had 208,000 active customer accounts.

The Bottom Line on TWLO Stock

After spending much of 2020 in the driver’s seat, it seems that TWLO stock buyers have stalled out. However, its shares appear to be severely oversold in 2021. Twilio is demonstrating strong growth in revenues and in active customer accounts.

Therefore, you don’t have to be overly concerned about the company’s modest forward guidance. It might just be a setup for a better-than-expected performance in the current earnings cycle.

On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

David Moadel has provided compelling content – and crossed the occasional line – on behalf of Crush the Street, Market Realist, TalkMarkets, Finom Group, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets.

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