Twilio Stock: After Years of Underperformance, is TWLO Poised for a Turnaround?

Twilio's stock (NYSE: TWLO) has navigated a turbulent 2025, offering an underperforming 8.23% decline YTD, marked by both positive catalysts and disappointing financial results. The central question for investors now is whether the stock's recent underperformance signals a buying opportunity or a continuation of downward pressure.

Wells Fargo has just initiated coverage with a bullish $130 price target, with analysts increasingly growing bullish. Zooming out to the 1 year, and TWLO has actually gained an impressive 57% on the period, yet remains firmly lower on the 5 year (-65.53%). The messaging is undoubtedly mixed. 

Volatility in the stock has come to be expected by longer term watchers of the name. After a disappointing Q4 2024 earnings report in February 2025 triggered a 16.5% plunge, the shares rebounded sharply in January on optimistic 2027 profit forecasts, surging 20% in a single session. This whipsawing price action underscores the market's uncertainty surrounding Twilio's future prospects.

The Q4 2024 earnings revealed an 11% year-over-year revenue increase, reaching $1.19 billion. However, the company reported a GAAP loss of $0.08 per share for the quarter and $0.66 per share for the year. Despite a robust $657 million in free cash flow generation for the year, the market reacted negatively to the earnings miss and forward guidance at the time.

However, Twilio's forward-looking statements painted a brighter picture. The company projected an adjusted operating margin of 21% to 22% by 2027 and committed to generating $3 billion in free cash flow over the next three years. This optimistic outlook hinges on several key growth drivers, including the increasing adoption of conversational AI and the rollout of Rich Communication Services (RCS).

Strategic partnerships and product launches further bolster the bullish case. The multi-year strategic partnership with Microsoft aims to accelerate conversational AI adoption, potentially unlocking new revenue streams and expanding Twilio's market reach. The general availability of RCS messaging, offering branded, interactive experiences to businesses, has already demonstrated a 32% increase in customer engagement and conversion rates compared to traditional SMS. This improvement suggests significant potential for future revenue growth.

Analysts have also weighed in with generally positive assessments. Wells Fargo initiated coverage with an “Overweight” rating and a $130 price target, citing Twilio's low AI disruption risk, tailwinds from providing infrastructure for voice AI, the RCS buildout cycle, and strong free cash flow generation. Piper Sandler also raised its price target to $140, expressing increased confidence in the company's ability to achieve durable, double-digit growth, supported by AI integrations and potential price increases in U.S. messaging services.

Governance changes also signal a proactive approach to addressing investor concerns. The appointment of Andy Stafman from Sachem Head Capital Management to the board, along with plans to change board director terms to one year, reflect a commitment to enhanced governance practices and responsiveness to shareholder feedback.

Despite these positive developments, challenges remain. Twilio must execute effectively on its strategic initiatives and deliver on its ambitious financial targets to regain investor confidence and justify its current valuation. The company's ability to navigate the evolving landscape of AI and communication technologies will be crucial to its long-term success.

Ultimately, whether Twilio's stock underperformance is set for a turnaround depends on its ability to translate its strategic initiatives and technological advancements into tangible financial results. The recent analyst upgrades and positive developments suggest a potential for recovery, but execution remains key to unlocking sustainable growth and driving investor returns.