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Twilio posted 12% YoY growth, highest-ever non-GAAP operating margins in the company’s history, healthy free cash flow, and strong AI-driven traction. Communications is humming, but Segment remains sluggish. Execution risk remains especially on cross-selling.
Disclaimer: This is not stock advice. Everything about the messaging business interests me, including asset pricing. Use your judgment to invest your money.
The Good
Topline and Operating Discipline Are Aligned
Twilio delivered $1.172B in revenue, with 18% non-GAAP operating margins. Free cash flow hit $178M despite seasonal bonus payouts. Non-GAAP income from operations grew 34% YoY to $213M.
Communications Is the Growth Engine
At $1.097B, Communications revenue was up 13% YoY. Dollar-Based Net Expansion Rate (DBNE) for the group hit 108%. Gross margin for the business held steady at 49.8% despite international volume mix shifts. Operating margin hit 25.3%—the clearest proof of leverage in Twilio’s core.
AI and Self-Serve Are Paying Off
AI handled 85% of inbound leads,and customers engaging with Twilio’s assistant were three times more likely to convert to paid accounts. Customers like Cedar and Sierra are adopting Conversation Relay and Generative Custom Operators to build voice AI agents.
Customer Wins Show Vertical Breadth
Top Q1 deals include Sierra, eight-figure IAM deal, Ylopo (spam mitigation), TextUs sole-sourcing, and Yext (WhatsApp and voice).
The Interesting
Gross Margin Under Pressure
Non-GAAP gross margin dropped 270 bps YoY to 51.3%, driven by a spike in international messaging traffic and the absence of prior hosting credits.
Segment’s Drag Is Shrinking—But Still There
Segment revenue grew just 1% YoY to $76M. Gross margin held at 74%, but DBNE was just 94%, and the unit still posted a -2% non-GAAP operating margin. A breakeven target is set for Q2, but investor confidence likely hinges on sustained performance, not just breakeven math.
Self-Serve as a Growth Vector
Twilio continues to convert self-serve signups into meaningful revenue. One delivery platform scaled from a single developer signup into a seven-figure deal. Examples like Sierra, and Synthflow show the potential, but it’s still early to declare victory across cohorts.
Product Attachments Are Expanding
Cross-sell is gaining steam. Verify, SMS Pumping Protection, Voice Integrity, and new AI voice features are accelerating beyond their initial beachheads. Twilio is finally starting to make its software atoms stick across its base—especially among ISVs. More on cross-selling in the sidebar later.
The Unknown
RCS: Still Waiting for a Breakout
Twilio remains cautious on RCS. Carriers and Apple haven’t moved fast enough. Despite modest traction and optimism around rich messaging + branding, scale remains limited. For now, RCS is a wait-and-see channel.
Macro Caution Despite April Holding Up
Twilio noted no material impact from macro weakness through April, even as peer industries (airlines, retail) struggled. But its Q2 guide only carries forward part of the Q1 beat.
AI: Can It Move the Needle Beyond Hype?
Voice AI use cases are showing up in logos, not just slides. But does this materially change the revenue mix? Early signs are promising, but AI’s financial contribution remains murky.
Cross-Selling Isn’t Automatic
Twilio is pitching Segment + Voice + AI as a unified solution. But behind the scenes, this is still a stitching project. R&D is working to integrate product lines, and the sales org is ramping cross-sell.
Sidebar: The Flywheel of Cross-Selling
Cross-selling remains in the unknown column for now despite early wins. Even leadership set expectations by calling it a multi-year journey.
When it works, cross-sell is, after retention, the single biggest revenue multiplier. But I’m skeptical it’s moving at a flywheel pace. And at Twilio’s scale, only flywheels move the needle.
A true flywheel has an inevitability to it.
Step B doesn’t just follow Step A—it bumps in as Step A’s barely out the door. And Step C snaps into motion like it’s tethered to B by a stretched elastic band. It takes product, process, and people working together in high-feedback, fast-paced environments.
Such a flywheel is built on routine but isn’t rigid or reduced to rote. It is high on team handoffs, low on team meetings.
So, when a customer comes to buy one product, you cannot help but understand their use case—can’t stop yourself from unearthing their pain points, from figuring out the other products that could help them. And what’s more, the pricing sheet is easy to access and simple to understand. Multi-product selling is not only easy for your customer, it’s also simple for your sales teams. They understand what to sell and more importantly what’s in it for them.
I don’t see that happening at scale. Yet.
The Earnings Call Say/Do Ratio
Twilio’s say/do ratio is strong. Just as impressive is how those claims match what I see in the ecosystem.
On Margin Discipline
When you tell me there’s discipline in pricing and a focus on margins, I agree. I’ve seen it. I’ve built robust bidding environments for my clients. I’ve watched Twilio walk away from deals they couldn’t deliver profitably.
On Non-Messaging Products
When you say your fastest-growing products are non-messaging, I believe it. Silent authentication is elegantly simple. AIT protection is smart and easy to use. The execution is mature.
On AI and Voice
When you say AI will recharge Voice, I agree. AI will reinvigorate all natural user interfaces, and that will reignite the voice channel. This will lead to more Minutes of Usage (MOUs).
On RCS
When you say RCS’s revenue impact will be neutral to mildly positive for the foreseeable future, I don’t love hearing it, but I agree.
RCS right now is that elevator that hasn’t arrived. The button has been pressed. The crowd is growing. Everyone’s jabbing at the panel, wondering if the thing’s even working.
(Brands and ISVs, ignore this moment of insider venting. Use the toothbrush test. Start working with your CSP to experiment with RCS. It’s coming.)
Finally
Twilio’s Q1 shows a durable growth story, with many plot points still under construction. It continues to set the standard for what it means to be a CPaaS leader. It also isn’t taking success for granted, which is a good thing.
A little healthy paranoia is good for business.