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On Friday, Bernstein SocGen Group updated its outlook on Twilio (NYSE:TWLO), increasing the price target to $119 from the previous $82, while keeping a Market Perform rating on the shares. The stock currently trades at $147.28, and according to InvestingPro analysis, Twilio appears to be trading near its Fair Value, with impressive YTD returns of 36.27%. The adjustment follows Twilio's Q4 2024 earnings report, which showcased a revenue growth increase to double digits, marking an 11% year-over-year rise for the first time in two years. The company's performance exceeded market expectations by 115 basis points (bps), partly due to a boost from political-driven spending, which contributed a 60 bps tailwind. With annual revenue reaching $4.46 billion and a healthy gross margin of 51.1%, Twilio demonstrates strong fundamental metrics. InvestingPro subscribers can access 15 additional key insights about Twilio's performance and outlook.
Despite the positive growth in revenue, Twilio is facing some challenges. The company's guidance for Q1 2025 anticipates a slight decline in year-over-year growth to 8.4%, attributed to the tough comparison with a leap year and two fewer days in the quarter compared to Q4 2024. However, Bernstein analysts suspect this forecast might be conservative and expect Twilio to achieve just over 10% growth. This optimism is based on the belief that an improving economy will enhance customer engagement and, consequently, the consumption of Twilio's communication services. The Segment business, which has been facing difficulties, is also expected to see some stabilization.
Bernstein's updated model for Twilio includes modest tweaks. The firm's new price target calculation employs a balanced approach, combining a 4x Price/Sales ratio derived from multiples regression and a Discounted Cash Flow (DCF) analysis. The DCF assumptions have been adjusted, with the Weighted Average Cost of Capital (WACC) reduced from 14% to 11% and the terminal growth rate set at 3%, down from the previous 0%.
The earnings report was also notable for overcoming the negative impact of the ZipWhip end-of-life transition, which posed a 40 bps headwind. Despite this challenge, Twilio's Q4 results demonstrated the company's ability to maintain growth momentum.
In summary, Bernstein's revised price target for Twilio reflects a mix of caution and optimism, taking into account both the recent performance improvements and the potential headwinds the company may face moving forward. The Market Perform rating suggests that while the analysts see potential in Twilio, they are maintaining a neutral stance on the stock at this time. InvestingPro data shows the company maintains a strong financial position with a current ratio of 4.2, and has delivered exceptional returns with a 143% price increase over the past six months. For deeper insights into Twilio's valuation and growth prospects, investors can access the comprehensive Pro Research Report, available exclusively to InvestingPro subscribers.
In other recent news, Twilio has been at the center of various analyst notes, following its fourth-quarter performance. William Blair maintained an Outperform rating on Twilio, citing an 11% revenue increase for the quarter and consistent improvement in organic revenue growth. However, Twilio's free cash flow for the quarter fell short of the consensus estimate due to an additional $130 million in vendor prepayments. Needham, on the other hand, raised its price target on Twilio shares to $165, reiterating a Buy rating based on the company's promising growth narrative and recent advancements in artificial intelligence.
In contrast, BofA Securities increased its price target to $77 but maintained an Underperform rating on the stock, citing concerns about the company's current market valuation. Meanwhile, Stifel raised its price target to $130, maintaining a Hold rating, and highlighted Twilio's increasing influence in the AI arena.
In addition, Bernstein noted the potential benefits to software vendors, including Twilio, from the buzz around Deepseek, a new AI tool known for its high inferencing performance at a low price. These are some of the recent developments in the analysis of Twilio's performance and potential.
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