On Wednesday, Piper Sandler adjusted its outlook on Twilio Inc. (NYSE:NYSE:TWLO), a cloud communications platform, by reducing the price target to $77 from the previous $79 while maintaining an Overweight rating on the stock. The revision reflects a change in the firm's growth assumptions for the company.
The new price target is based on a 15 times multiple applied to the estimated free cash flow (FCF) for the calendar year 2025 (CY25E), which is a decrease from the previous 16 times multiple. Despite the reduced growth rate forecast, Piper Sandler has slightly increased its free cash flow estimates, citing confidence in Twilio's potential for margin improvement. However, the firm has lowered its expectations for the net-new contribution in CY25.
Twilio's anticipated FCF for CY25 is projected at $704 million, inclusive of the company's net cash position of $2.9 billion and a share count of 174 million. The revised growth rate now suggests a compound annual growth rate (CAGR) of approximately 5%.
The adjustment in Twilio's price target and growth expectations comes amid a dynamic period for the tech sector, with many firms re-evaluating their performance metrics in light of changing market conditions. Twilio's Overweight rating indicates that Piper Sandler still sees the company's stock as a potentially strong performer relative to the market or its sector, despite the modified financial projections.
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Morgan Stanley (NYSE:MS) recently downgraded Twilio stock to Equalweight from Overweight, citing concerns over the lack of near-term top-line catalysts. The firm also reduced the price target to $60 from $70. Despite this, Twilio reported a revenue of $1.047 billion in Q1 2024, marking a 7% year-over-year growth, and a non-GAAP income from operations of $160 million, a 54% increase from the previous year.
Wall Street firms have offered varied perspectives on Twilio's financial health and strategic direction. While some analysts expect the company to re-accelerate its revenue growth, others express caution, pointing to muted growth in Twilio's Segment division and concerns over the achievability of its full-year growth guidance.
Piper Sandler reiterated an Overweight rating on Twilio shares with a price target of $79.00, while Scotiabank reduced its stock price target to $90 from the previous $100 but kept its Sector Outperform rating.
InvestingPro Insights
Piper Sandler's revised outlook for Twilio Inc. aligns with some of the current financial metrics and InvestingPro Tips for the company. Twilio's market capitalization stands at approximately $9.65 billion, reflecting its significant presence in the cloud communications industry. Notably, Twilio holds more cash than debt on its balance sheet, which is a positive sign of financial health and could provide a cushion against market volatility. Additionally, the company has a high shareholder yield, which may be attractive to investors seeking companies with potential for return on investment.
On the earnings front, 20 analysts have revised their earnings upwards for the upcoming period, indicating a positive sentiment about the company's future performance. This optimism is further supported by predictions that Twilio will turn profitable this year, despite not being profitable over the last twelve months as of Q1 2023. It's worth noting that the company does not pay a dividend, which could be a consideration for income-focused investors.
InvestingPro also provides a wealth of additional tips on Twilio, which can be accessed for a deeper analysis. By using the coupon code PRONEWS24, readers can get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription, unlocking further insights that could inform investment decisions. There are 6 additional InvestingPro Tips available for Twilio, covering various aspects of the company's financial and operational status.
Overall, Twilio's financial metrics and the proactive steps highlighted by InvestingPro Tips suggest that the company is navigating the dynamic tech landscape with strategic measures, which may align with the positive outlook held by Piper Sandler.
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