Twilio (NYSE: TWLO) shares plunged 12.90% in pre-market trading on Friday, as investors reacted negatively to the company's lower-than-expected third-quarter guidance, despite beating analyst expectations for the second quarter. The sharp decline highlights growing concerns over the company's near-term profitability and financial transparency.

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 stock's significant pre-market drop:

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 attributed to a shift in messaging mix and increased carrier fees. The company's CFO, Aidan Viggiano, noted that messaging revenue mix increased by 260 basis points year-over-year, which was the primary driver of the gross margin decline in Q2.

2. Increased R&D investments: Twilio announced plans for heightened R&D investments, particularly in AI and voice capabilities. While potentially beneficial in the long term, these investments may impact near-term profitability. The company maintained its full-year non-GAAP income from operations range, indicating that it's taking the opportunity to make accelerated R&D investments in response to strong customer demand in voice, RCS, and AI offerings.

3. Reduced financial transparency: Twilio's decision to cease separate financial disclosures for its business units starting in Q3 raised concerns among investors about transparency. This move comes as the company continues to integrate its Segment acquisition with its communications capabilities.

Despite the negative market reaction, Twilio's management remained optimistic about the company's future prospects. CEO Khozema Shipchandler highlighted strong growth in voice AI adoption and the potential for AI to expand their total addressable market. The company also reported a 57% year-over-year increase in the number of deals closed over $500,000 within communications, indicating broadening platform adoption and enterprise traction.

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. The market's response suggests that investors are adopting a cautious stance, focusing on near-term challenges rather than long-term potential.