Twilio Inc. (NYSE:TWLO) has been downgraded by HSBC from a ‘Hold’ rating to ‘Reduce,’ with the firm also lowering its price target for the company’s shares from $62 to $61. This move comes as HSBC shifts its valuation approach for Twilio from Price to Sales (P/Sales) to Price to Earnings (P/E) ratio.
According to HSBC, Twilio is no longer considered a high-growth, no-profit company and is now perceived to exhibit a lower growth rate. The current valuation of Twilio is deemed steep compared to other companies with similar growth profiles in the sector, especially when assessed using non-GAAP (Generally Accepted Accounting Principles) valuation metrics.
Analysts project that Twilio is expected to continue incurring losses through 2028, as indicated by GAAP-based metrics. The market’s perception of Twilio may evolve, with investors starting to consider share-based compensation and recurring one-off costs as regular expenses due to the company’s slower growth. This marks a departure from the current trend where many investors overlook these costs when calculating non-GAAP metrics.
HSBC believes there is a considerable downside risk to Twilio’s share price if investor sentiment shifts towards a stricter adherence to GAAP metrics. This could lead to a reevaluation of the company’s actual financial health, potentially impacting its stock value.
