Q3 2024 Summary
Published Feb 7, 2025, 7:58 PM UTC- ISV channel growth: Twilio's ISV channel is a meaningful contributor that grows faster than the consolidated revenue base and carries higher gross margins, indicating strong growth potential and profitability in this segment.
- Acceleration in core businesses: The company experienced accelerated growth in messaging and email, along with strong performance in the ISV and self-serve channels, leading to double-digit revenue growth in Q3. This demonstrates momentum in Twilio's core business areas.
- Confidence in 2025 growth outlook: Twilio is seeing improving trends and has increased confidence in its growth outlook for 2025, expecting 7% to 8% revenue growth based on stabilized and reaccelerating trends, particularly in the self-serve and ISV channels.
- Slowing pace of operating margin expansion: Twilio's operating margin expansion is beginning to decelerate. In Q3, they incurred additional bonus accrual expenses of $18 million, which impacted margins. The CFO mentioned they are confident in their ability to continue gaining leverage but did not provide specific numbers for next year, suggesting future margin expansion may be less significant.
- Modest guidance raise despite strong Q3 results: Despite the acceleration in revenue growth in Q3, Twilio only modestly raised its guidance for Q4. They increased guidance by 2 percentage points to 7%-8%, citing prudence due to their usage-based revenue model. This cautious approach may indicate uncertainty about sustaining the growth trajectory.
- Increasing competition in the contact center market: The contact center market is becoming more competitive, with traditional and new vendors, including large-cap software companies and hyperscalers, targeting this space. Twilio's Flex product may face challenges differentiating itself as competitors integrate AI solutions into their offerings.
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Revenue | Q4 2024 | no prior guidance | $1.15B to $1.16B (7–8% YoY growth) | no prior guidance |
Non-GAAP Income from Operations | Q4 2024 | no prior guidance | $185M to $195M | no prior guidance |
Organic Revenue Growth | FY 2024 | 6% to 7% | 7.5% to 8% | raised |
Non-GAAP Income from Operations | FY 2024 | $650M to $675M | $700M to $710M | raised |
Free Cash Flow | FY 2024 | $650M to $675M | $650M to $675M | no change |
Revenue Growth | FY 2025 | no prior guidance | 7% to 8% | no prior guidance |
GAAP Operating Profitability | FY 2025 | no prior guidance | GAAP operating profitability (full year) | no prior guidance |
| Metric | Period | Guidance | Actual | Performance |
|---|---|---|---|---|
Revenue | Q3 2024 | 1,085 million to 1,095 million | 1,133.65 million | Beat |
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2025 Growth Outlook
Q: What gives you visibility for 2025 guidance?
A: We've seen stabilization and modest reacceleration in growth over the past quarters. Self-serve has been strong, and ISV partner volumes are sustainable. Our products are performing well, and we're excited about innovations in AI, especially combining communications with contextual data. Given these factors, we're confident in our 2025 outlook, assuming a neutral macro environment similar to today. -
Margin Expansion Drivers
Q: How should we think about margin expansion next year?
A: In Q3, operating margin was impacted by an $18 million bonus accrual due to higher profit forecasts. We expect continued margin expansion driven by Segment reaching breakeven—Segment lost $16 million in Q3, implying a $64 million annual opportunity. We're also focusing on automation and workforce planning to optimize organizational structures and locations. -
Revenue Acceleration in Q3
Q: What's driving the acceleration in revenue, particularly in messaging?
A: Revenue grew 10% organically in Q3. Messaging accelerated, and email remained strong. We saw strength in our ISV platform and self-serve channels. Key industries like tech, healthcare, financial services, and retail showed healthy growth, while social and messaging were softer but a smaller portion of revenue. U.S. revenue was strong, and international trends improved for the second consecutive quarter. -
ISV Channel Growth
Q: How significant is the ISV channel, and how fast is it growing?
A: While we haven't disclosed exact figures, the ISV channel is a meaningful contributor that grows faster than our consolidated revenue and carries higher gross margins. It's an important partnership channel that helps us achieve leveraged distribution. -
Segment's Path to Breakeven
Q: What's the impact of Segment reaching breakeven on margins?
A: Segment lost $16 million in Q3. Annualized, that's $64 million, so reaching breakeven will significantly contribute to margin expansion. We're making progress on go-to-market improvements and pairing Segment with our communications products to enhance customer value. -
AI and OpenAI Partnership
Q: How will the OpenAI partnership impact your business?
A: The partnership allows us to use OpenAI's large language models with our voice capabilities via Twilio APIs. Initially voice-based, we expect it to expand across all channels over time. While we don't anticipate material revenue impact in the near term, we're excited about combining communications and contextual data with AI for personalized interactions. -
RCS Adoption Outlook
Q: What's your outlook on RCS adoption and its impact?
A: It's unclear how RCS will play out in the near term. RCS suits certain industries like airlines with frequent purchases. We don't expect RCS to significantly change our underlying business dynamics or impact revenues and margins. Regardless of RCS adoption, we believe it will be accretive, and we're bullish on Generative AI paired with contextual data. -
Free Cash Flow Guidance
Q: Should we expect free cash flow margin to outpace operating margin?
A: Free cash flow generally tracks closely with non-GAAP operating income over time. We have episodic prepayments affecting free cash flow in Q4, but we view this as timing rather than a structural issue. We'll provide more details on 2025 at our Investor Day. -
Self-Service Growth Impact
Q: Where are you in your self-service journey?
A: We're continually improving the developer experience to make it as easy as possible to use our platform. While we've introduced some friction to ensure trust and compliance, we're focused on reducing barriers for developers and startups. Self-service has been a bright spot and contributes to our growth. -
Political Traffic Contribution
Q: How does political traffic affect your growth?
A: In Q3, political traffic contributed about 90 basis points to growth but was offset by sunsetting a Zipwhip product, resulting in minimal net impact. We expect similar immaterial contributions in Q4. We've limited political traffic due to our acceptable use policy.