Shares of cloud-based communications platform Twilio (NYSE:TWLO) advanced more than 5% in Wednesday’s pre-market trading as The Information reported that activist investor Legion Partners met the company’s management and board several times, urging them to consider changes to the board and other strategic options, including divestitures.
Twilio and Legion have been discussing several matters over the past few months, including steps to improve the company’s cost structure, balance sheets, and strategic alternatives. Activist Legion is known for pushing for director changes at retailers Bed Bath & Beyond (BBBY) and Kohl’s (KSS). As per a regulatory filing, Legion disclosed a stake worth $40 million in Twilio as of March 31, 2023.
The activist investor pressure comes at a crucial time for Twilio, with the company’s CEO and co-founder Jeff Lawson set to lose his supervoting power in less than a month. Under a longstanding agreement, Lawson has a voting stake of close to 22%, even though he holds only 3.7% of TWLO stock. Once the supervoting power expires, all the shares will combine to form one class. The loss of the CEO’s supervoting power could make the company vulnerable to pressure from stockholders.
Twilio Stock – What’s Ahead?
Earlier this month, Twilio disappointed investors with lower-than-anticipated guidance for the second quarter. The company expects its Q2 revenue in the range of $980 million to $990 million, reflecting a growth of 4% to 5%. The outlook reflected a considerable slowdown compared to almost 15% growth in Q1 revenue. The impact of macro pressures on IT spending is hurting Twilio’s business.
Like several other tech companies, Twilio is focusing on improving its profitability, given persistent macro challenges. Earlier this year, the company announced that it was reducing its workforce by about 17%.
Is Twilio a Good Stock to Buy?
Wall Street’s Moderate Buy consensus rating on Twilio is based on 10 Buys, 12 Holds, and 1 Sell. The average price target of $65.40 implies 4.4% upside. Shares have risen 28% year-to-date.
This week, both Barclays and Stifel Nicolaus rated TWLO a Hold. Interestingly, both firms gave the stock a $50.00 price target, implying a downside of 20.22%.