Twilio Inc (TWLO)

Conclusion

Twilio Inc (TWLO.US) provides a customer engagement platform, with programmable APIs for messaging, voice, email and video, identity tools, and the Segment customer data product. At a price of 206.64 USD on 2026-11-09, the market capitalisation is 31.97 billion USD.

The verdict is fair. Price-to-sales of 5.48 sits below its ten-year median of 8.94, while price-to-book of 3.49 sits above its median of 2.97. The DCF gives 101.22 USD per share at a discount rate of 12.37%, while the fair value from historical multiples is 256.34 USD. The fair value band runs from 143.03 to 214.54 USD, with a midpoint of 178.78 USD and a margin of safety of -13.5% at the current price. The reverse DCF implies growth of 25.9% a year, against revenue growth of 23.5% a year over five years, a gap the reverse DCF reports as 2.4%.

What holds the case up is the balance sheet: net debt to EBITDA of -4.37, meaning net cash, an Altman Z-score of 9.91, and free cash flow conversion of 94.2% on a trailing basis. What would break it is returns: ROIC of 2.5% against a WACC of 12.1%, and revenue growth that has slowed to 9.8% a year over three years. Enterprise value to EBITDA of 71.7 leaves little room for that slowdown to continue.

Financial health

The financial strength is green, held up by a current ratio of 4.47, a net debt to EBITDA of -4.37 and an Altman Z-score of 9.91, with debt to equity of only 0.12 as a further support. Interest coverage is not available, because the company does not report its interest expense.

The Altman model was designed for manufacturers, and Twilio is a software company, so the zone of 9.91 (safe) should be read with that limit in mind. Insolvency risk: low, about 0.02% by the estimate of the Ohlson model over one to two years, based on figures as of 2025-12-31. The quick ratio of 4.09 confirms that short-term liquidity does not depend on inventory.

Earnings quality

Earnings quality is green, supported by free cash flow conversion of 94.2% on a trailing basis, a Beneish M-score of -2.84 that reads as unlikely manipulation, and an accrual ratio of -9.9%. Five-year free cash flow conversion is not available.

Stock-based compensation equals 10.1% of revenue, and free cash flow after it is 612.2 million USD on a trailing basis, so dilution matters. The share count has grown at 1.7% a year over five years, so there are no net buybacks. The Piotroski score is 6 of 9 evaluable tests.

The company beat earnings estimates in seven of the last eight quarters, with an average surprise of 22.2%. Current-year estimates were revised up 7.8% over 90 days with no downgrades in the last 30 days, while next-year estimates rose 3.2% with 4 downgrades against 11 upgrades.

Profitability

Profitability is yellow. Gross margin is 48.6% against a ten-year median of 51.5%, and operating margin is 7.1% against a median of -17.1%. Net margin is 21.8% against a median of -21.6%.

The main weakness is returns: ROIC of 2.5% against a WACC of 12.1%, with ROIC minus WACC at -9.6%, which means the business is not earning its cost of capital. The five-year median ROIC is -9.0%. Return on equity of 13.9% is not inflated by leverage: in the 2025 DuPont split the equity multiplier is only 1.25, with asset turnover of 0.52 and a net margin of 0.67%.

Growth

Growth is green. Revenue compound growth is 9.8% over three years, 23.5% over five years and 40.7% over ten years. Revenue grew in all 10 comparable years.

The three-year rate is well below the five-year rate, so the pace has slowed recently. Compound growth in earnings per share is not available. The next-year earnings estimate implies growth of 11.4%, which is the figure the market appears to rely on.

Valuation

Valuation is yellow, held back by an enterprise value to EBITDA of 71.7 and a P/E of 25.1, while price-to-sales of 5.48 is 38.7% below its ten-year median and supports the case. Price-to-book is 17.5% above its median.

The DCF gives 101.22 USD per share at a discount rate of 12.37%, with 20% growth in the first phase and 2.5% in the terminal phase. The fair value from historical multiples is 256.34 USD, and the fair value band runs from 143.03 to 214.54 USD. The fair value is an order-of-magnitude estimate built on fixed assumptions, not a price target.

The reverse DCF implies 25.9% growth, which is above the 23.5% five-year revenue growth. The company pays no dividend, and free cash flow yield is 3.75%.

Risks

The weakest number is ROIC of 2.5% against a WACC of 12.1%. If returns stay below the cost of capital, growth adds less value and the current multiples are harder to justify. An enterprise value to EBITDA of 71.7 leaves little margin for error if growth slows further from the 9.8% three-year rate.

Stock-based compensation at 10.1% of revenue and a share count growing 1.7% a year dilute per-share value. Interest coverage and five-year free cash flow conversion are not available. The cost of debt is an assumption, because the company does not report its interest expense.

This analysis has limits: there is no debt maturity schedule and no revenue by segment, and the DCF value is sensitive to its fixed growth and discount assumptions.