Investing.com -- HSBC upgraded Twilio (NYSE:TWLO) to Hold from Reduce on Monday, citing early signs of revenue momentum and a more reasonable valuation. 

The firm also raised its target price for the company’s shares to $99 from $77 following strong first-quarter results and improved guidance.

“Twilio reported solid 1Q25 results and raised its 2025 guidance,” HSBC analysts wrote, noting that revenue of $1.17 billion beat estimates by 2-3% and marked the highest year-over-year growth in eight quarters at 12%.

Non-GAAP EPS of $1.14 was approximately 20% above consensus, and operating margin expanded by nearly 300 basis points to 18.2%.

HSBC highlighted encouraging customer adoption trends and product traction, including “broadening partnerships with AI startups with voice needs” and growing demand for offerings like ConversationRelay. 

The firm also noted that Twilio’s dollar-based net expansion rate improved to 107%, up from 102% a year ago.

Despite raising 2025–28 EPS estimates by 3% to 6%, HSBC expressed skepticism over Twilio’s long-term margin targets. 

“We are modelling FY27 non-GAAP operating margin of 19.1% vs company guidance of 21.5%,” analysts said, pointing to concerns over planned reductions in share-based compensation and structurally lower gross margins compared to peers.

While Twilio trades at a sector-discounted 20.0x CY26e non-GAAP P/E, HSBC flagged that on a GAAP basis, the multiple jumps to 72.5x, far above the sector median of 28.6x. 

“Lower-quality growth is heavily influenced by cost-cutting rather than operations,” they added.

Still, HSBC acknowledged the company’s improving outlook, saying, “We expect the company to report an EPS CAGR of 14.3% over CY24-27e, which is towards the higher end of 10-15% typical for the sector.”

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