Twilio Inc. (NYSE: TWLO)

Second quarter revenue rose 22% to $1,499.1M. Part of that is not growth Twilio earns: $71.1M came from incremental U.S. carrier messaging fees that Twilio passes through at cost. Excluding them, revenue grew about 16%, close to the 17% organic rate management reports. Existing customers are spending more, with dollar based net expansion at 116% against 108% a year ago, and new accounts added $75.7M of revenue.

Profitability improved where it matters. Non-GAAP operating income reached $284.6M (a 19% margin) and free cash flow $352.6M (24%), while sales and marketing spend fell 2%. Reported net income of $1.07B is not a run rate: it includes a $944.1M one off tax benefit from releasing a valuation allowance, and operating income absorbed a $32.8M write off of prepaid network services at two struggling network providers.

Management raised 2026 guidance to 13% to 13.5% organic growth and $1.135B to $1.155B of free cash flow, and the stock has more than doubled over the past year. The Street's average price target is $268.39, from 30 analysts, 25 of them rating it a buy. Our revenue forecast is within half a percent of consensus through 2028; our DCF check shows the target needs a low discount rate. Third quarter results are due 29 October 2026.

Twilio sells programmable communications: APIs that developers embed in their own applications to send messages, place voice calls, and deliver email and video, plus software built on top of them for contact centers, marketing campaigns, and user authentication. Customer data and AI orchestration tie these channels together. Most revenue is usage based, so it follows customers' own volumes and consumer activity, with a seasonal peak in the fourth quarter.

The company reports one segment. No customer organization accounted for more than 10% of revenue in the first half of 2026, and revenue was $5.07B in 2025.

Management's plan is durable, profitable growth: new products and AI driven orchestration, more partner and reseller distribution, self service, cross selling, and international expansion, paired with automation and infrastructure savings. The first half of 2026 shows the plan working: GAAP operating income of $192.2M against $60.1M a year earlier.

Our base case has growth slowing from the 2026 guide of about 18% reported to 12% in 2027 and 9% by 2030, with free cash flow margin rising from 19.1% to 23.5%. That is a good outcome for the business. The question for the stock is how much of it the price already assumes.

Twilio's advantage is that its APIs sit inside customers' production applications, login flows, and contact centers. Replacing them means rewriting code, re-registering messaging campaigns with carriers, and risking outages, which keeps customers in place and supports net expansion above 100%. A broad customer base with no customer above 10% of revenue adds resilience.

We stop at narrow. Core messaging is close to a commodity, carriers control a large part of the cost base, and GAAP operating margin reached only 6% in Q2 2026. Goodwill of $5.29B on $10.84B of total assets is a reminder that past acquisitions have not yet earned their cost.

Twilio holds $2.66B of cash and short term securities against $1.0B of senior notes (3.625% due 2029 and 3.875% due 2031), leaving $1.66B of net cash. Under the $2.0B repurchase program authorized in January 2025 it has bought back $1.2B of stock, with $826.0M remaining through 2027; it repurchased 2.6M shares for $319.4M in the first half of 2026.

Against that, stock based compensation was $278M in the same six months, so much of the buyback spend goes to holding the share count steady rather than shrinking it: diluted shares were 159.7M in Q2 2026, the same as a year earlier. No dividend is paid. We rate allocation standard: disciplined on debt and cash, but not yet reducing dilution.