Following a double-downgrade by BofA Global Research, Twilio stock is down significantly on Wednesday. Analyst Michael Funk lowered his price objective for the provider of cloud-based software from $175 to $80 and downgraded his rating for the business from Buy to Underperform.
Twilio (ticker: TWLO), which offers tools to let businesses communicate with clients via text, email, voice, and video, is the subject of Funk’s about-face for three reasons.
For starters, according to a poll of 348 users of software development tools, 52% anticipate spending less money with Twilio in 2023 than they did this year. Based on the survey results, the analyst claims that in the near future, “when corporations limit discretionary expenditure or seek lower cost alternatives,” he is “more concerned” about Twilio’s usage-based revenue model. That warning is reminiscent of the disappointing September quarter results released last week by the two biggest suppliers of cloud computing services, Microsoft Azure (MSFT -3.54%) and Amazon Web Services (AMZN), both of which use usage-based revenue structures.
In the meantime, Funk continues, he recently met with several of Twilio’s main partners and discovered evidence of both competitive-price pressures and protracted sales cycles as a result of the macroeconomic malaise. While demand for CPaaS—communications platform as a service—remains high, usage and spending are “trending lower,” the author continues.
The expert claims that the consensus projections for 2023 do not accurately reflect the state of the economy and that there is a negative risk to such projections. He decreased his personal revenue projection for 2023 from $4.93 billion to $4.74 billion, putting him slightly behind the average of $4.91 billion. In contrast to Funk’s forecast of $3.79 billion, the Street consensus sales estimate for 2022 is $3.87 billion.
On Thursday, Twilio will release its third-quarter financial results and host a virtual investor day in the afternoon. Twilio expects revenue for the quarter to be between $965 million and $975 million, with a non-GAAP loss of between 37 cents and 43 cents per share; the consensus estimate on the street is for revenue to be between $972 million and a loss of 36 cents per share.
The price of Twilio stock is down 6.2% at $70.40.
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Author Valerie Remorosa 
