Source: Financial World
Investment bank Barclays said $Twilio (TWLO.US)$ is in a turning point, which could be bad news for investors in the short term.
The bank’s analyst RyanMac Williams downgraded the communications software stock to hold and lowered his price target to $110 from $175, saying a slowing digital economy means Twilio may need to tighten its belt at the expense of growth. Especially in the lower-margin international business.
MacWilliams, who previously rated Twilio at Overweight, wrote in the report that the above scenario could lead to a deceleration in Twilio’s consolidated organic revenue growth, which Barclays believes should TWLO go down this more profitable and slower growth path. , its share price may face short-term pressure. Nonetheless, Barclays believes more sustainable/profitable growth is favorable from current investor sentiment, and we simply believe that TWLO’s current shareholder base can see a turnaround during the transition.
Twilio said on an earnings call last month that it expects to post a positive non-GAAP operating profit in 2023, but that doesn’t reassure investors who have largely abandoned unprofitable companies in 2022. Shares of Twilio are down 60% so far this year.
Barclays said that even if a move to focus on margins hurts the stock price in the short term, Twilio may have to prove to investors that it will be a strong company in the long run.
MacWilliams wrote: “Barclays believes that TWLO’s ultimate profit profile will continue to be a factor of uncertainty for investors given the growing pressure on gross margins in Twilio’s information division and the shift in the business mix to international revenue.” Barclays believes that TWLO stock deserves a lower valuation multiple (albeit at a high growth rate) given the uncertainty about free cash flow profit potential.
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