Twilio (NYSE: TWLO) saw its shares plummet 10.49% in after-hours trading on Thursday, despite reporting better-than-expected second-quarter earnings. The sharp decline came as investors focused on the company's lower-than-anticipated third-quarter guidance and concerns over declining gross margins.

For the second quarter, Twilio reported adjusted earnings of $1.19 per share, surpassing the analyst consensus estimate of $1.05. Revenue for the quarter reached $1.228 billion, up 13.39% year-over-year and beating expectations of $1.188 billion. However, the company's outlook for the third quarter fell short of Wall Street estimates, with projected earnings per share of $1.01 to $1.06, below the consensus of $1.15.

The stock's decline can be attributed to several factors. Firstly, Twilio's gross margin showed signs of pressure, declining 260 basis points year-over-year to 50.7%. This decrease was primarily due to a shift in messaging mix and increased carrier fees. Secondly, the company announced plans for increased R&D investments, particularly in AI and voice capabilities, which may impact near-term profitability. Lastly, Twilio's decision to cease separate financial disclosures for its business units starting in Q3 raised some concerns among investors about transparency.

Despite the negative market reaction, Twilio's management remained optimistic about the company's future prospects, highlighting strong growth in voice AI adoption and the potential for AI to expand their total addressable market. However, the market's response suggests that investors are adopting a cautious stance, focusing on near-term challenges rather than long-term potential.