Analyst Michael Funk from Bank of America Securities reiterated a Sell rating on Twilio (TWLO – Research Report) and increased the price target to $90.00 from $77.00.
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Michael Funk’s rating is based on several factors that highlight concerns about Twilio’s current valuation and future prospects. The company reported fourth-quarter revenue that matched its earlier announcement, but the valuation remains high at 28 times free cash flow, which is considered expensive compared to similar growth software companies with subscription models. This valuation becomes even more stretched when considering that 50% of free cash flow is allocated to stock repurchases, leading to a multiple of 96 times.
Additionally, while the revenue and operating income for the fourth quarter were largely in line with expectations, the guidance for the first quarter of 2025 was slightly below consensus, suggesting potential revenue pressures ahead. Although Twilio’s dollar-based net expansion rate improved slightly, the non-GAAP gross margin declined and fell short of street expectations. Despite some constructive trends in growth and free cash flow generation, these factors, combined with lower revenue visibility and increased competition, underpin the decision to reiterate an Underperform rating and adjust the price objective to $90.