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At $1.1 billion in revenue, with a 51% gross margin and improved free cash flow, Twilio took the prize for both earnings and profitability beats. Bandwidth displayed double-digit growth and enhanced profitability, while Sinch reported its highest ever cash flow from operations. Upland also exceeded expectations but remains an enigma. Despite surpassing forecasts, it has now seen two years of declining revenue, sits on $233 million in cash, and has made no major moves to supercharge growth.
I have written extensively about Upland and other companies I monitor. There’s no need to revisit these discussions unless it is to rethink or reemphasize my views. Below is a list of everything I’ve written related to their earnings.
Disclaimer: This is not stock advice. Everything about the messaging business interests me, including asset pricing. Use your judgment to invest your money.
Companies: Bandwidth, Bloomreach, Cisco Webex, Infobip, Klaviyo, LinkMobility, Shopify, Sinch, Twilio, Upland.
Topics: co-selling relationships, e-commerce, email, messaging growth, omnichannel communications, political texting, pricing pressures, product differentiation, product-led cross-selling, product-led growth, push notifications, RBM, RCS , single-sign-on.
Reflections on Earnings
- May 2023: The One learning from Q1 Earnings
- July 2023: RouteMobile gets Acquired; Sinch Announces Q2 Results
- August 2023: Q2 CPaaS Earnings Review, and the Klaviyo S-1 Filing
- November 2023: What Bandwidth Earnings Tell Us
- November 2023: A Look into Q3 Earnings of Twilio, Klaviyo and Others
- February 2024: Growth and Valuation in 2024
- February 2024: Three Key Learnings from Twilio, Sinch, and LinkMobility Earnings
- February 2024: Upland Shares Lackluster 2024 Guidance
- February 2024: Messaging and Growth in the Pandemic
- April 2024: 2024 Earnings Season Kicks Off
- May 2024: Twilio, Sinch, Bandwidth, LinkMobility and Klaviyo Q1 Earnings
- May 2024: The 2024 SaaS Growth Snapshot
- June 2024: Braze Delivers a Strong Quarter
The Good—Cash Flow, Profitability
A back-to-the-basics story is illuminative in its simplicity. All the companies are demonstrating their ability to sustain profitability and prioritize cash flow through disciplined operations. Based on the tripod of revenue growth, gross margins, and free cash flow, Twilio stands out as the leader. It is the only public messaging business achieving $1 billion per quarter in revenue with greater than 51% gross margins, while also generating, based on its Q2 free cash flow, $4.60-per-share annually.
Every few months, I hear grumblings about Twilio’s supposedly unsustainable margins, especially since it is competing with players who, on their best days, achieve margins in the thirties. Yet Twilio continues to maintain its margins by focusing on premium customers who are willing to pay a higher price for a differentiated product.
Bandwidth and Sinch are also demonstrating a renewed product-led focus in their operating models. In fact, Sinch underwent a full reorganization on January 1, adopting a unified product line strategy. In this strategy, the network product is managed for cash flow, while the top-end products are managed for differentiation. This shift is becoming evident in its revenue mix. The company also reports that its SMB and mid-market segments are performing better than its enterprise segment.
The Interesting—Political Texting, E-commerce
Twilio is steering clear of any new political business, while Bandwidth forecasts $20 million in political revenue this year, having already generated $3 million from political texting in Q2 alone. Political texting is a major sector in the US. For a deeper understanding, tune in to the AAPC webinar I’ll be participating in on August 14. Did Twilio deliberately step away from a seasonal yet substantial business? And how will Bandwidth address a potential $20 million shortfall in 2025? These are questions for which we’ll have answers next year.
Sinch, Bandwidth, and Twilio all suggest a rainbow wheel of use cases driving growth, yet they also note that e-commerce has been remarkably healthy. This week, Klaviyo and Shopify are set to release their earnings, and it will be interesting to see their perspectives on the e-commerce sector, especially in the mid-market and SMB segments.
Product-led cross-selling is challenging. Sinch reports that most customers purchase only one product per month. Twilio is developing customized flows tailored to specific use cases, and both Twilio and Sinch are investing in single-login systems that work across all their platforms. I’ve long argued that talking up SMS at the expense of other channels—whether it’s email, voice, or push—is a disservice to the expansiveness of communications. Viewing SMS growth as coming at the expense of email, which then impacts voice and push, creates a zero-sum scenario where growth in one channel only happens by taking market share from another.
In omnichannel communications, the strategy should mirror real life. You reach customers in the mode that makes sense for the use case and for the occasion. Klaviyo exemplifies this, especially during key sales periods like Black Friday / Cyber Monday, when its customers opt for text messages, but in the lull between Thanksgiving and Christmas chose email instead. Sinch is seeing this as well, where anyone who is thinking of sending messages is definitely sending emails, just maybe not from the same platform. Both Twilio and Sinch are working on Single-Sign-On because product-led cross-selling starts by making the product accessible.
The Unknown—Growth, RCS
Bandwidth admitted to a quarter-over-quarter decline in commercial messaging growth rate. Sinch mentioned it wasn’t pleased with the growth and that, despite a slower market, it grew by 2%. Meanwhile, Twilio touted its co-selling relationships with Bloomreach, Klaviyo, and others. Co-selling are partner agreements, not necessarily customer contracts. So while Klaviyo is a marquee partner, the actual revenue growth it generates for Twilio remains to be seen.
Adding to these challenges are pricing pressures. Messaging is a usage business, and in my informal chats with many of you, you’re all reporting double-digit increases in raw messaging traffic. Yet revenue growth rates are not even on the same mathematical slope. The good news is that message volumes are up; the not-so-good news is that messaging may be becoming commoditized.
Looking at the broader industry, Amazon reports customer sensitivity to prices, and then there’s last Friday’s cautionary jobs report. This raises the question: is growth a macroeconomic challenge or a product differentiation opportunity?
Speaking of product differentiation, only Sinch spoke meaningfully about RCS, but its focus was still more on the product itself. So far, only LinkMobility has directly shared the RCS market revenue (its results come out on August 14). In the competitive US market, RCS offers a significant leap-ahead opportunity for companies like Sinch, which have refined this ground-up refresh of SMS in other geographies. Companies like Infobip and Cisco Webex (formerly IMIMobile) also hold this advantage.
RBM (the A2P version of RCS) will be the singular margin-expanding opportunity for the industry. It’s unclear, though, whether Twilio, Bandwidth—and Sinch—are focused and aggressive enough about it.
Finally
The good news thus far is that there have been no surprises. The companies continue to operate with discipline, and while they may “compete mightily” with each other, the overall market is expanding and growing. With Klaviyo, LinkMobility, and Braze set to announce their earnings in the coming weeks, it will be interesting to see how these vertical and international players report on their first half performances.