Twilio (NYSE: TWLO) shares plummeted 11.76% in after-hours trading on Friday, following the company's second-quarter earnings report. Despite beating analyst expectations for Q2, investors reacted negatively to 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 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.

Several factors contributed to the sharp stock decline:

1. Gross margin pressure: Twilio's gross margin showed signs of strain, 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.

2. Increased R&D investments: The company announced plans for heightened R&D investments, particularly in AI and voice capabilities. While potentially beneficial long-term, this may impact near-term profitability.

3. Reduced financial transparency: 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.

As Twilio navigates these challenges, investors will be closely watching how the company balances its investments in emerging technologies with maintaining profitability and transparency in its financial reporting.