UPDATED 16:43 EDT / MAY 02 2017

CLOUD

Twilio shares plunge 24 percent on weak earnings outlook

Cloud communications company Twilio Inc. lost well over a quarter of its valuation in the first 20 minutes of after-hours trading Tuesday after reporting a lower-than-expected outlook and “changes in the relationship” with its largest customer, Uber Technologies Inc.

Twilio, whose software-as-a-service enables software developers from the likes of Uber and second-largest customer WhatsApp to incorporate voice, video and text messaging into their apps and web services, didn’t elaborate in its first-quarter earnings release. But in comments during the earnings conference call, Chief Executive Jeff Lawson said Uber’s share of Twilio’s revenue is on a decline, something he said he’s “clearly not happy” with.

Uber’s share of Twilio’s revenues fell from 17 percent in the fourth quarter to 12 percent in the first quarter, and Lawson said the percentage is likely to decline further this year. He cited Uber’s adding rival services, doing more inside its own app, and “optimizing by use case and geography.”

He added that “this doesn’t change our outlook for the business.” He also said the third-largest customer was a much smaller part of its business, only 2 percent, with a “gradual slope” down for the rest of its top customers.

The company said it expected to lose 10 to 11 cents a share, not counting certain expenses such as stock compensation, on revenue of $85.5 million to $87.5 million in the current quarter. It also forecast a 2017 loss of $356 million to $362 million. Analysts surveyed by FactSet had reckoned a second-quarter loss of 8 cents a share on revenue of $87.8 million and a 2017 loss of 16 cents a share on revenue of $370 million.

The outlook obliterated any goodwill from what otherwise was a better-than-expected first quarter. Twilio reported an adjusted loss of 4 cents a share on first-quarter revenue of $87.4 million, up 47 percent even with the Uber dropoff, which may indicate resilience from other customers. Wall Street had expected Twilio, which went public last June in one of the relatively few tech initial public offerings in 2016, to lose $5.8 million, or 6 cents a share, on revenue of $83.6 million.

Investors hammered the shares, which crashed a stunning 30 percent in after-hours trading, following a 1.3 percent fall in regular trading, to $33.93 a share. The company had warned last quarter that gross profit margins could fall because it plans to invest in growth early this year, but clearly investors didn’t expect this much of a decline. Update: In trading Wednesday, shares recovered slightly, falling about 24 percent.

In its IPO filing, Twilio had cited Facebook Inc.’s messaging service WhatsApp as its largest customer in 2015, accounting for 17 percent of its revenues. But Uber’s portion of its revenues clearly overtook WhatsApp, which the company said is now its second-largest customer, at 5 percent of revenues.

Lawson cited 42 percent growth in active customer accounts from a year ago. The company also added 4,000 new accounts, higher than the average 2,800 per quarter for the last few quarters. Lawson said the company now has nearly 41,000 customers, up 42 percent from a year ago.

Nonetheless, virtually every question from analysts on the conference call concerned Uber, in particular whether its decision to spread out its communications service providers indicated other customers might do so as well. Lawson said Uber was an “outlier,” with a singular scale to spread its bets geographically and to undertake in-house development.

Photo: MichelAelbrecht/Pixabay

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