Twilio Inc. TWLO has had a tough run this year, with the stock falling 18.2% year to date. That’s worse than the broader Zacks Internet – Software industry, which fell 11% during the same period. Compared to key competitors like Microsoft Corporation MSFT and Cisco Systems, Inc. CSCO, Twilio’s slump appears even more pronounced.
Twilio Stock YTD Price Return Performance
Zacks Investment Research
Image Source: Zacks Investment Research
This steep decline raises the question: Should investors cut their losses and exit, or is TWLO stock worth holding onto? While the near-term headwinds are real, the long-term growth story for Twilio remains intact, making a strong case for retainment.
Why Did Twilio Stock Struggle?
The company’s recent slump is part of a larger tech pullback triggered by fears of an escalating tariff war and slowing economic growth. Lower-than-expected bottom-line results for the fourth quarter of 2024 and a dim profit outlook for the first quarter of 2025 compounded the situation.
On Feb. 13, the company reported a non-GAAP EPS of $1.00, missing the Zacks Consensus Estimate of $1.02, while revenues of $1.19 billion narrowly surpassed forecasts.
Twilio Inc. Stock Price, Consensus and EPS Surprise
Twilio Inc. Price, Consensus and EPS Surprise
Twilio Inc. price-consensus-eps-surprise-chart | Twilio Inc. Quote
However, the company’s disappointing first-quarter 2025 guidance alarmed investors. Management projected EPS in the band of 88-93 cents, below the consensus mark of 95 cents. Moreover, the revenue forecast of $1.13-$1.14 billion implied a sequential decline, sparking concerns about slowing demand and profitability pressures.
While these short-term results are concerning, they do not undermine Twilio’s strong long-term fundamentals. The company’s continued investments in AI, customer engagement solutions and a loyal customer base reinforce its long-term growth potential, making the stock worth holding through the current volatility.
Twilio Leads the Customer Engagement Market
Twilio maintains its leadership position in customer engagement by enabling real-time, personalized interactions for businesses globally. Its AI-powered solutions play a key role in driving efficiency and customer satisfaction. Twilio Verify and Voice Intelligence leverage AI to automate and optimize customer interactions, delivering better security and valuable insights.
Twilio Segment, its rapidly growing customer data platform, is another standout growth driver. By unifying customer data from multiple touchpoints, Segment empowers businesses to run highly targeted, data-driven marketing campaigns, boosting retention and sales.
As enterprises increasingly adopt AI to streamline operations and enhance customer experiences, Twilio’s data-rich, AI-driven platforms will continue to benefit from this trend. The company’s strategic positioning in the growing customer engagement market makes it a strong long-term hold despite near-term challenges.
Twilio’s API-First Strategy: A Competitive Edge
Twilio’s application programming interface (API)-first approach differentiates it from larger tech rivals such as Microsoft, Amazon AMZN and Cisco Systems. While these giants offer standardized, bundled solutions, Twilio’s customizable APIs enable businesses to create tailor-made communication experiences, giving them a competitive advantage.
This flexibility appeals to a wide range of customers, from startups to large enterprises, enhancing customer stickiness and loyalty. Furthermore, Twilio’s global reach across 180+ countries extends its market presence beyond many regional competitors. Its deep integration across messaging, voice, email and video makes it the go-to provider for comprehensive customer engagement solutions, strengthening its long-term growth prospects.
Despite the earnings miss, Twilio’s financial performance remains strong. In the fourth quarter, the company delivered 16.3% year-over-year EPS growth, with revenues climbing 11%, demonstrating its resilient business model.
Twilio’s dollar-based net expansion rate improved to 106%, up from 105% in the previous quarter and 102% in the year-ago quarter, reflecting strong customer retention and upselling momentum. The company’s active customer accounts grew to more than 325,000 as of Dec. 31, 2024 compared to 320,000 in the previous quarter, highlighting its continued customer acquisition.
Twilio’s balance sheet remains solid, with $2.38 billion in cash, cash equivalents and short-term investments as of Dec. 31, 2024. Its free cash flow generation of $657.5 million in 2024, along with $716.2 million in operating cash flow, demonstrates its financial stability and ability to fund growth initiatives.
Twilio’s strong cash flow has helped it return cash through regular quarterly dividend payments and share repurchases. In 2024, Twilio repurchased $2.33 billion worth of shares, completing its $3 billion buyback program. In January 2025, the board authorized a new $2 billion share repurchase plan, effective until Dec. 31, 2027, reflecting management’s confidence in the company’s long-term value.
Following the recent sell-off, Twilio’s valuation has become more attractive. The stock currently trades at a forward P/S multiple of 2.75X, below the Zacks Internet - Software industry average of 4.46X. This relative discount suggests that much of the short-term weakness is already priced in, making the stock a compelling hold for patient investors.
Twilio Forward 12-Month P/S Ratio
Zacks Investment Research
Image Source: Zacks Investment Research
Compared to larger tech rivals, Twilio trades at a higher P/S multiple to Amazon but at a lower multiple to Microsoft and Cisco Systems. At present, Microsoft, Cisco Systems and Amazon trade at P/S multiples of 9.43X, 3.91X and 2.67X, respectively.
Final Thoughts: Hold TWLO Stock for Now
While Twilio faces near-term challenges from disappointing guidance and broader tech sector weakness, its long-term growth drivers remain intact. The company’s leadership in customer engagement, expanding AI capabilities and financial resilience position it for sustainable growth.
Given its reasonable valuation and strategic positioning, investors should hold Twilio stock for now, as the company is well-positioned to capitalize on long-term trends in customer engagement and AI adoption despite short-term market pressures.
Currently, Twilio carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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