Why Twilio Stock Fell as Much as 14% Today

What happened

Shares of business software platform provider Twilio (NYSE: TWLO) fell as much as 13.8% on Thursday following the release of strong third-quarter results with a side of disappointing guidance. By 12:40 p.m. EDT, the stock had recovered slightly to a loss of 12.2%.

So what

Twilio's third-quarter sales rose 75% year over year, stopping at $295 million. Adjusted earnings landed at $0.03 per share, 57% below the $0.07 per share seen in the year-ago quarter. Your average analyst would have settled for earnings near $0.01 per share on revenues of approximately $288 million.

The story changes when you look ahead. Twilio's fourth-quarter range of revenue guidance centered on $313 million, and adjusted earnings should land near $0.02 per share. The analyst consensus had been calling for earnings closer to $0.07 per share and sales of roughly $322 million.

A one-dollar bill folded, origami-style, into a charting arrow pointing downward.

Image source: Getty Images.

Now what

For what it's worth, the fourth-quarter analyst view expected Twilio's revenue growth to match the rate of expansion seen in the third quarter. The actual guidance points to a slightly slower year-over-year growth rate of roughly 68%. This provider of corporate communications tools that businesses can add to their in-house systems and processes is barely profitable, and its market value is largely based on the prospect of continued hypergrowth. Therefore, any sign of a slowdown can give Twilio's stock a drastic haircut.

That's what happened today, slamming the brakes on Twilio's skyrocketing stock price gains. But don't cry for Twilio's shareholders. This stock is still trading 63% higher on a year-over-year basis on sky-high valuation ratios such as 340 times forward earnings and 17 times sales. We're still looking at a classic growth stock here, albeit one that appears to have hit a speed bump.

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Anders Bylund has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Twilio. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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