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Twilio Forecasts 2020 Loss but CFO Says Expect a Return to Break-Even in Q4

Twilio shares sagged on news of the surprise loss, but CFO Khozema Shipchandler tells TheStreet that investors will applaud Twilio for the stepped-up spending.
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Twilio shares were slumping about 4% Thursday morning as the company reported quarterly revenue and profit that topped consensus, but said it will report a net loss per share this year where analysts had been expecting a profit.

But CFO Khozema Shipchandler says analysts and investors shouldn't worry. 

“What [analysts] couldn’t have known was that 2020 will be an important investment year for us,” Shipchandler told the Street in a phone interview following the Q4 report on Wednesday evening. Shipchandler was being asked about the forecast net loss of 14 to 20 cents per share, excluding some costs, for 2020, versus the average estimate of analysts, going into the report, for a 22-cent profit per share.

The shortfall is a result of the company’s spending more on back-office processes, as well as on sales and marketing, in order to take advantage of “the next wave of growth that is right in front of us,” Shipchandler said.

“It’s always a choice, right?” Shipchandler added. “We can choose to take money that falls to the bottom line or we can choose to re-invest it back into the business to promote growth.” Shipchandler noted that the company has “gotten a lot of support from investors as long as it’s efficient,” referring to the company's investments. “They’ve applauded that.”

Shipchandler pointed out that within that full-year loss of as much as 20 cents per share, “it’s really front-end loaded,” meaning, the bulk of the shortfall will come earlier this year. “And as we discuss how the P&L develops, we expect to be back to break-even in Q4,” he added.

In some sense, TheStreet anticipated the spend when it asked Shipchandler, back in May of last year, how things might change for the company as it crossed the threshold of a billion dollars annually in revenue, which finally happened with Q4’s results. Back in that May interview, Shipchandler indicated Twilio would spend to achieve growth, as a general principle.

For the quarter, Twilio beat consensus estimates for revenue and profit in Q4, delivering $331.2 million in revenue, a 62% year-over year-increase, and 4 cents per share in earnings, versus the average estimate for $312 million and a penny-per-share profit.

That 62% growth includes revenue from SendGrid, the company that handles bulk email campaigns for companies. Twilio acquired SendGrid just over a year ago. Twilio said on a conference call following the report that SendGrid revenue totaled “nearly $54 million” in the quarter. Shipchandler told TheStreet that Twilio will not break out revenue for SendGrid going forward.

Revenue this quarter is forecast in a range of $335 million to $338 million compared to the average estimate for $327 million while the company expects a net loss of 9 cents to 11 cents a share versus consensus for a 3-cent profit. For the full year, the company sees revenue in a range of $1.475 to $1.49 billion, and a net loss of 14 cents to 20 cents versus consensus for a 22-cent profit.

Regarding the stepped-up spending, some of it is being done to beef up the company’s back-end systems for things such as billing, which have caused operational issues for Twilio.

In the prior quarter, Q3, Twilio had run into a billing issue that actually reduced its reported revenue. It gave credits to customers totaling $5 million in that quarter, it said at the time.

“It was a clarion call around the billion in revenue landmark that we need to make the investments necessary to get our infrastructure ready for the next wave of growth,” Shipchandler told TheStreet.

Another area of spending is on “Flex,” the company’s move into handling more communications for customers. Twilio’s software, what it calls the “Engagement Cloud,” is a kind of remodeling of front-office tasks such as sales and customer support. The company is moving into the more ambitious, larger-scale area of supplying contact centers via Flex.

“We feel great about the long-term opportunity” with Flex, said Shipchandler, explaining the desire to invest more in the platform. “We see that’s a great long-term trend, a great product, and there’s lots enthusiasm from customers.”

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