Update 1. Wow, this article is generating some discussion and lots of direct messages. I’ve updated to likely make everyone equally annoyed by the analysis.

Twilio reported Q2 2023 revenues of $1.04B, and earnings of 54c per share, both above analyst expectations. Earnings were 86% above analyst estimates! The big shift was losses dropping from $322.8 million, or $1.77 a share, in the year-ago quarter, to $166.2 million, or 91 cents a share. There have been lay offs and divestitures, which accounts for over half that improvement, and Twilio’s cost of goods appear to be improving as well. Whether this is the result of a one off favorable prepay deal, or a systematic improvement by pumping traffic through a lower cost route is yet to be determined.

The PE vultures were circling, but these results should buy Twilio more time.

It’s an impressive set of results given TCR gumming up the works for other US A2P providers, Route Mobile reporting a 6 year struggle to break into the US market, and Syniverse struggles.

Twilio’s gross margin for the quarter ending March 31, 2023 was 49%. For most aggregators / CPaaS gross margins are 15-25%, less than half that. Most aggregators live on a knife edge between what the carrier charges and what the customer will pay for SMS. Not having direct connection is a serious disadvantage, see my commentary on Ericsson, Vonage and Nokia.

Twilio has a range of services it owns like Flex, which have a far higher margin than SMS aggregation. Though A2P SMS related services are the largest contribution to Twilio’s revenues.

I’ve been digging into the US A2P market in a little more detail, it is complex! For example, trying to understand what Twilio got for its $750M investment. Remember Syniverse just announced a round of layoffs and organizational consolidation. At present it appears Twilio has control over one of its suppliers, enough control to avoid Syniverse being bought which is a significant risk for Twilio. Hence the situation Syniverse finds itself in, squeezed by the carriers, and unable to move.

Talking with other US-focused aggregators, their estimates are Twilio accounts for the majority of the SMS campaign traffic through TCR. And because of that received a large discount compared to other aggregators when they prepay for messaging. Prepayments is one of the many complexities in understanding the actual cost of goods, when the prepay runs out the price jumps up.

Prepay is a common method used in the industry, and with some A2P aggregators I’ve heard the prepayments can find their way into marketing cost than cost of goods. The more I dig, the more complex this market gets. I need to keep on digging, finding the cost of goods for an A2P SMS shouldn’t be so difficult!

In other news Kaleyra (owner of TCR) reported their Q2 results, on $86.8 million revenue they made a loss of 69 cents per share. Losses, adjusted for non-recurring costs and amortization costs, came to 8 cents per share. They were loss making throughout 2022, and their gross margin is about 25%, at the top end for aggregators, thanks to the TCR.

Clearly TCR is growing Kaleyra’s revenues and raising their margins, some aggregators refer to it as a monopoly and a license to print money. Though the accusation of monopolistic practices could be made more widely in the US market. When other aggregators claim to be the European or Asian version of Twilio, then must realize Twilio is in quite a unique position in the US market, and this is a market that is very hard to break into as Route Mobile shared.

Twilio still has the carriers behind Syniverse and TCR looking on jealousy, at least the PE Vultures may have backed off for a while. Though with a stock price of $60 when only 2 years ago it was $400, the PE vultures will never be too far away. However, $400 was during the pandemic when success was magnified, just like Zoom.

I think the complexity of determining something as simple as what is an A2P SMS cost of goods; combined with the struggle Route Mobile faced in entering the US market, creates conditions where like the rest of the telecoms industry Americans seem to be paying a premium in both cash and time (SPAM).