TWLO · Research
Twilio Owns the Developer Connection but the Carriers Own the Road
Twilio's cash left for shareholders reached $524.7M over twelve months, but carrier fees and a rising share count keep us waiting.
- Cash left for shareholders after capex, capitalized software and all stock pay
- $524.7M
- Carrier fees passed through to revenue, added in the quarter
- $53.1M
- Change in shares outstanding despite buybacks
- +2.1%
1. Our call: Hold off, because Twilio finally earns real cash but holders are not yet keeping it
Our call: Hold off. Twilio sells programmable messaging, voice, email and verification services that developers build into their own apps, plus a customer data product called Segment [1].
It bills mostly by usage: each text, call or verification a customer sends through its network [1].
Third quarter 2026 revenue rose 20% to $1,559.5M, and 16% on the company's organic measure, which strips out acquisitions and new fees that U.S. carriers charge on business texts [2][3]. Fiscal 2025 revenue was $5,067.2M, up 13.7%, our calculation [7].
The company guides fourth quarter revenue to $1,595M to $1,605M, which puts 2026 near $6,065M, growth of about 20%, our calculation [3][7].
We measure owner cash, the cash left for shareholders: operating cash flow, less purchases of long-lived assets, less capitalized software, less all stock pay. On that measure Twilio produced $345.1M in 2025 and $524.7M over the twelve months to Sep 30, 2026, about 9.0% of revenue, our calculation from the filings and SEC XBRL [2]
2. Research spending has fallen below a fifth of revenue
| Metric | Value |
|---|---|
| R&D share of revenue | 20.1%, $1,020.2M on $5,067.2M, 2025, our calculation [7]. Nine months to Sep 30, 2026: $815.9M on $4,465.5M, 18.3%, our calculation [2] |
| GAAP net margin | 0.7%, $33.8M on $5,067.2M, 2025, our calculation [7]. Nine months to Sep 30, 2026: 29.5%, but 8.5% without a one-time $937.1M tax benefit, our calculation [2] |
| API quality | 5 of 5, our scoring: the product is the API; customers reach every channel through public, documented programming interfaces and the 10-K describes a self-serve developer model [1] |
| Toll-gate score | 0 of 4 pass, 3 partial, 1 fail (section 2b) |
2b. Twilio owns the developer, the carriers own the road
A developer writes Twilio's code into an app once, and every text, call or one-time code after that flows through Twilio to a carrier [1]. Switching means rewriting that code and re-registering sender numbers, which is real friction, but the message itself is delivered by networks Twilio does not own [1][2].
| Test | Result | Evidence |
|---|---|---|
| Owns the record | Partial | Segment stores customer profiles and event data, but most revenue comes from messages and calls that leave no lasting record on Twilio's side; contracted revenue not yet recognized was only $120.9M at Sep 30, 2026 [2]. |
| Owns the connection | Partial | Twilio holds the developer integration, but U.S. carriers set the fees on business texts, which Twilio passes through at cost, and two network providers' troubles cost it a $32.8M write-off of prepaid services [2]. |
| Prices close to outcomes | Fail | Customers pay by message, minute or verification, not by the sales or logins those messages produce [1]. |
| R&D on the gate vs features | Partial | Twilio bought Stytch, an identity platform for software agents, for $104.1M in Nov 2025, but the 10-Q does not split R&D between the network layer and new products [1][2]. |
No passes, three partials and a fail. The partial on the connection is the core of the case: Twilio is the place developers plug in, but every carrier fee increase shows that the networks, not Twilio, set the toll on the final mile [2].
The fail reflects usage pricing that rises with volume, not with what the customer earns from each message [1].
3. Growth has picked up for three straight years
Growth bottomed in 2024 and has climbed since [7]. Third quarter revenue grew 19.9% against 15% a year earlier, and the dollar-based net expansion rate, which compares spending by the same customer accounts a year apart, rose to 114% from 109% [2].
Part of the step-up is not demand. The $259.1M rise in third quarter revenue included $53.1M of new carrier fees, which Twilio passes through with no profit, so about one fifth of the growth was a toll collected for someone else, our calculation [2].
The company's organic figure of 16% excludes those fees and Stytch [3].
The guide points the other way. Fourth quarter guidance implies organic growth of only 11% to 12%, four to five points below the third quarter, while reported growth of 17% to 17.5% stays higher because the carrier fees keep flowing through [3].
A reader who looks only at the 20% headline would miss that the underlying pace is expected to slow, our reading of the guidance [3].
4. Many customers, and one large related party
Twilio serves a wide base of businesses and the 10-K names no customer above 10% of revenue [1]. The company dropped its count of active customer accounts as a key metric from the first quarter of 2026, so the main customer gauge left is net expansion [2].
Twilio owns a stake in Syniverse, a messaging carrier hub it invested in in 2022, and books its share of Syniverse's losses: $77.1M in the first nine months of 2026 [2]. Under a wholesale agreement Syniverse routes some of Twilio's texts; those dealings fell to $1.3M in the third quarter from $35.6M a year earlier, which suggests Twilio has moved traffic elsewhere [2].
The concentration risk is in suppliers, not buyers. A handful of U.S. carriers deliver most of the business texts Twilio sends, and they can raise fees or block traffic [1][2].
5. Gross margin is under 50% because carriers take half
Gross margin was 48.8% in the third quarter against 48.6% a year earlier, our calculation [2]. Cost of revenue rose $130.7M, and $129.3M of that was network service provider costs [2].
The company says rising carrier fees do not hurt gross profit but weigh on margin as a percentage [2].
GAAP operating income was $148.6M in the quarter against $40.9M a year earlier, and $340.8M for nine months, even after the $32.8M prepaid write-off [2]. The company's non-GAAP operating income of $325.7M excludes stock pay and amortization [3].
Stock pay was $600.4M in 2025, 11.8% of revenue, and $432.3M in the first nine months of 2026, 9.7%, our calculation [7]. It has fallen every year since $798.6M in 2022, which is the main reason cash left for shareholders turned clearly positive [7].
6. What shareholders kept has risen twelve-fold in two years
| Period | Operating cash flow | Capex and capitalized software | Stock pay | Cash left for shareholders |
|---|---|---|---|---|
| 2024 | $716.2M | $58.8M | $616.6M | $40.8M, our calculation [1][7] |
| 2025 | $1,003.2M | $57.8M | $600.4M | $345.1M, our calculation [1][7] |
| Nine months to Sep 30, 2025 | $731.7M | $42.4M | $446.7M | $242.6M, our calculation [2][7] |
| Nine months to Sep 30, 2026 | $914.8M | $60.1M | $432.3M | $422.3M, our calculation [2][7] |
| Twelve months to Sep 30, 2026 | $1,186.3M | $75.5M | $586.1M | $524.7M, our calculation [2][7] |
The company's own free cash flow, which does not subtract stock pay, was $1,110.8M over the same twelve months, our calculation [2][7]. Stock pay took 52.8% of that, our calculation [7].
The company guides 2026 free cash flow to $1.19B to $1.20B [3].
The trend is the strongest part of the case: free cash for investors rose from $40.8M in 2024 to $524.7M on a trailing basis, while stock pay stayed near $600M a year [7]. If operating cash keeps growing near 20% and stock pay stays flat, the measure keeps widening [3][7].
7. Buybacks are larger than the cash holders kept, and shares still rose
Twilio repurchased $868.9M of stock in 2025 and $448.3M in the first nine months of 2026, our calculation from the filings [1][2]. Over the twelve months to Sep 30, 2026 buybacks were $646.8M against $524.7M of cash left for shareholders, a ratio of 1.2 to 1, our calculation [7].
About $700M remains on a $2.0B authorization that runs to Dec 31, 2027 [3].
Even so, shares outstanding rose to 154.7M on Oct 16, 2026 from 151.6M on Oct 17, 2025, an increase of 2.1%, our calculation [7]. Over the longer run the count fell from 181.0M in Nov 2023, a drop of 14.5%, mostly from $2,334.4M of buybacks in 2024 [7].
Buybacks slowed this year while stock awards kept vesting [2].
The balance sheet carries the program. Cash was $1,061.5M and marketable securities $1,829.9M at Sep 30, 2026, against $1.0B of senior notes due 2029 and 2031 [2].
8. The main risks are carriers, agents that bypass texts and stock pay
Carriers: major U.S. carriers raised fees on business texts from the third quarter of 2025, and the 10-Q says they may raise them further [2]. Two network providers' operating and financial problems left Twilio with $32.8M of prepaid services it could not use [2].
Channel change: if software agents talk to customers inside chat apps or on the web rather than through texts and calls, Twilio's metered volume could fall even as engagement grows [1].
Stock pay: the amended equity plan passed in Jun 2026 with 30.3M votes against and 88.9M for, about a quarter opposed, a weak result for a plan vote [6]. A large new reserve would push the share count higher [4][6].
Tax: the $937.1M tax benefit in the second quarter came from releasing a valuation allowance; it inflates nine month net income and is not cash [2].
9. A mature platform that has moved from growth at any cost to cash
Twilio is past the growth stage it was in through 2022, when it lost cash from operations and stock pay was 20.9% of revenue, our calculation [7]. It cut staff in 2023, separated the chair and chief executive roles, and has spent most of its cash on buybacks since [1][4].
Three choices mark the current stage. It returned more cash to holders than it kept, it bought Stytch to move into identity for software agents, and it released its tax valuation allowance after three years of U.S. profit [1][2].
Each fits a company that expects steady profit rather than a turnaround.
The test for this stage is whether growth near 15% organic holds without a new round of dilution [3][6]. Shares outstanding are what holders bear, and they rose over the past year after falling 14.5% from Nov 2023, our calculation [7].
10. Agents that send messages still need a network
The bull case is that software agents will send far more texts, calls and verification codes than human staff did, and they need a single API that reaches every carrier in every country, which Twilio has built over more than a decade [1]. Net expansion of 114% suggests existing customers are already sending more [2].
The bear case is that agents shift traffic toward channels Twilio does not meter, and that carriers capture the value of rising volume through fees, as they did with the $53.1M added in a single quarter [2].
The test between the two cases sits in numbers Twilio already discloses. If agents lift demand, organic growth should stay at or above 15% into 2027 and net expansion should hold above 110% [2][3].
If carriers take the gain, reported growth will keep running four or more points above organic while gross margin slips below 48% [2][3].
11. A former GE team at the top and a board tied to Okta, Autodesk and Microsoft
Khozema Shipchandler, chief executive since Jan 2024, was previously Twilio's chief financial officer and chief operating officer and before that finance chief of GE Digital after 19 years at General Electric [4]. He joined the Ethos Technologies board in 2026 and sat on the Smartsheet board from 2023 to 2025 [4].
Chief financial officer Aidan Viggiano also spent 16 years in finance at General Electric [4].
Independent Chair Jeff Epstein, former Oracle and DoubleClick finance chief and an operating partner at Bessemer Venture Partners, sits on the Autodesk, Okta and AvePoint boards [4]. Jeffrey Immelt, former General Electric chief executive and an NEA venture partner, sits on the Bloom Energy board and left Desktop Metal and NeueHealth in 2025 [4].
Immelt once led the company where both Twilio's chief executive and finance chief trained [4].
Charles Bell is an executive vice president at Microsoft, a seller of rival communications services, after 23 years at Amazon [4]. Deval Patrick, a senior partner at The Vistria Group, sits on the Toast board [4].
12. The questions we would ask management, and the calls we are tracking
Question one: how much of 2027 growth do you expect from new carrier fees rather than more messages? [2]
Question two: why did shares outstanding rise 2.1% in a year with $646.8M of buybacks? [7]
Question three: how many shares does the amended equity plan add, and what annual dilution cap does the board work to? [6]
Question four: which two network providers caused the $32.8M write-off, and is any other prepaid balance at risk? [2]
Question five: what share of messages now comes from software agents rather than human-triggered events? That answer sets our conviction.
Prediction one: 2026 revenue exceeds $6,070M, the top of the implied range (60%). [3]
Prediction two: 2026 cash left for shareholders, as we define it, exceeds $550M (60%). [7]
Prediction three: fourth quarter 2026 organic growth is 11% or higher (75%).
Bottom line: Twilio earns the cash now, but holders are not yet keeping more of the company
Twilio's growth has risen for three years, and cash left for shareholders reached $524.7M over the twelve months to Sep 30, 2026, against $40.8M in 2024 [7]. But carriers collect a growing toll on its traffic, about a fifth of third quarter growth was pass-through fees, and shares rose 2.1% in a year despite $646.8M of buybacks [2][7].
We would move to Buy if organic growth holds at 15% or more and the share count falls year over year through 2027. Organic growth below 10% or gross margin below 46% would move us to Avoid. Our call: Hold off, conviction 3 of 5.
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