Twilio: Cathie Wood Completely Exits

seekingalpha05-10

Ark Invest has sold its entire stake in Twilio over the last four months.Twilio's revenue growth has slowed dramatically in recent years, but its bottom line and cash flow numbers have started to ...

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With revenue growth rates slowing, the company has worked to cut its significant losses and is now using a large buyback program to offset sizable dilution and reduce its share count. However, those efforts didn't seem to be enough for Ark Invest, which has now sold out of its entire Twilio stake after the company's Q1 report. The Twilio story in recent years: Twilio saw a huge growth boom during the coronavirus, with its customer counts and revenue numbers soaring. The company, however, was losing a lot of money at that time due to tremendous operating expenses. Cash flow numbers weren't as bad due to a lot of stock-based compensation add-backs, but that meant investors were being diluted. In recent years, revenue growth percentages have slowed dramatically, and reported numbers at the moment are being hurt by the sunsetting of the software component of its Zipwhip business in Q4 2023. Lately, the bottom line numbers and cash flow numbers have started to improve quite a bit. Reported cash flow is now quite positive, albeit at a cost of initial dilution, which management is offsetting and then some via $3 billion in buybacks over a 2-year period. Investors are now hoping that revenue growth will start to accelerate again, and cost cutting efforts will make the business much stronger for the long term. Q1 results show much of the same: After the bell on Tuesday, Twilio reported first quarter results. The company beat on the top and bottom lines, as it has done for each quarter in at least the last five years. Management likes to give conservative guidance, which sets up these beats down the road. Total revenues grew by 4% over the prior year period, but organic growth was reported at 7%. When excluding restructuring costs and impairments, the company reported an operating loss of just $33.6 million, much better than the more than $120 million from Q1 last year. The diluted share count came down by nearly 3% year over year, and that will improve even more in Q2 thanks to the buyback. One of the main reasons I've been neutral to bearish on the name in the past was this tremendous growth slowdown. The 4% revenue growth was the lowest reported number in many years, down from 81% just five years ago and 15% in last year's period. The other item I've tracked closely is customer growth. While the 8,000 accounts added in the period was the best in the past four fiscal quarters, it was actually less than in Q1 2023. Thus, as the chart below shows, year-over-year growth hit a new multi-year low.   Twilio Customer Growth (Company Earnings Reports) Like it has done so many times before, Twilio management gave a weak forecast for the current quarter, which is likely why shares lost 7.5% on Wednesday. Revenues were forecast to be in a range of $1.05 billion to $1.06 billion, whereas the street was expecting $1.08 billion. The forecast for adjusted earnings per share was mostly as expected, when considering the short-term help from the buyback that analysts may not have fully priced in. It wouldn't surprise me in the end if Twilio ends up near what the street was originally expecting, but for now, estimates will come down yet again. Cathie Wood sells out: I mentioned in my previous article that Ark Invest had been recent sellers of Twilio shares. The firm had owned Twilio in three of its ETFs - the ARK Innovation ETF (ARKK), the ARK Next Generation Internet ETF (ARKW), and the ARK Fintech Innovation ETF (ARKF). Around the end of last year, the ETF firm's total position was more than 6.7 million shares, or about 3.6% of Twilio's total. It was just a few days after Cathie Wood was on CNBC's Halftime Report appearing fairly bullish on Twilio that she started selling. It's been four months since then, with the position being exited as one of the tracking sites shows in the chart below. The last final few dozen shares were sold on Wednesday by ARKF, with allocation sales representing about 90% of the decline this year. Ark Invest has seen sizable redemptions so far this year, which accounted for the rest of the decline in the Twilio holding.   Ark Invest Twilio Holding (Cathie's Ark) Valuation appearing better: I mentioned in my previous article that Twilio shares were trading at around 2.50 times this year's expected sales. That figure was down considerably from the mid to high single digits that the stock fetched when the growth story was much more impressive. The valuation was down to about 2.31 times as of Wednesday's close, and if shares hold steady, the number could decline even more if the buyback pushes the share count down further through the rest of 2024. I've said for a few quarters now that we could see upside in shares if the growth story got back on track. Twilio decided to spend $3 billion on share buybacks, so there apparently weren't any meaningful acquisitions that could have helped on the revenue growth front. I could possibly argue for a 3 times price to sales valuation if revenue growth could get back to the low double digits, but I'm not sure we'll see that in the near term. Analysts do see upside to around $70, although the street average has come down a few bucks in recent months. Final thoughts and recommendation: We saw more of the same from Twilio at its Q1 report. The company announced decent beats on the top and bottom lines, but then provided current quarter guidance that was a bit light. While losses are coming down, revenue and customer growth rates have as well. The hope now is that things will accelerate in the coming quarters, but this won't be the explosive growth investors were used to in the past. Cathie Wood and Ark Invest finished their nearly four months of selling on Wednesday, selling the last of their stake that once stood at almost 4.25% of Twilio in November 2022.  I am continuing to rate Twilio shares as a hold for now. I need to see at least a little improvement in the growth story before I can recommend buying, as the street isn't rewarding the name for all the expense improvement currently. Perhaps the best near term catalyst is the large buyback plan, but a lot of it is being used to just offset previous dilution from stock-based compensation. Should we see a meaningful improvement in growth moving forward, I would consider a more positive rating at the next report.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":null,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":1,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.24.0","shortVersion":"4.24.0","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2434830078"}