Valuation Allowance Release Boosts Net Income
Twilio released a significant portion of its U.S. valuation allowance, resulting in a $944.1 million income tax benefit and a deferred tax asset recognition.
Source: 10-Q Item 2 MD&A
Computed from published fixed rules, not a model's judgement — though one input, the count of high-severity risks, comes from the AI analysis below.
Not investment advice and not a price target: it scores the quarter's fundamentals, not the stock. Full methodology →
AI Takeaway
Twilio's Q2 FY2026 was marked by a $944.1 million non-cash tax benefit that propelled net income, while operating performance reflected solid demand. Underlying growth was driven by increased product usage from existing customers, as evidenced by a dollar-based net expansion rate of 116%, and by incremental A2P fees passed through from carriers without impacting gross profit. Gross margin compressed slightly due to the A2P fee pass-through that dilutes margin percentages, and a $32.8 million impairment on prepaid assets weighed on operating income. The company generated healthy free cash flow of $352.6 million for the quarter, underscoring its cash-generating capability despite these non-operational items.
Revenue
$1.5B
+22.03% YoY
EPS (Diluted)
$6.68
+4671.43% YoY
Gross Margin
48.4%
-0.6 pts YoY
Operating Income
$84.55M
+128.57% YoY
Source: SEC XBRL
Twilio (TWLO) reported Q2 FY2026 revenue of $1.5B, up 22.0% year over year. Operating margin was 5.6%, up 2.6 points from 3.0% a year earlier. TWLO's fiscal Q2 FY2026 corresponds to calendar Q2 2026.
Last 4 quarters: 4 beats
| Quarter | Actual EPS (USD) | Consensus (USD) | Result |
|---|---|---|---|
| Jun 2026This filing | 1.47 | 1.34 | Beat +9.3% |
| Mar 2026 | 1.50 | 1.30 | Beat +15.5% |
| Dec 2025 | 1.33 | 1.26 | Beat +5.5% |
| Sep 2025 | 1.25 | 1.11 | Beat +13.1% |
Adjusted (non-GAAP) EPS of $1.47 versus the $1.34 analyst consensus — a +9.3% beat for Jun 2026. Analyst consensus is quoted on the adjusted (non-GAAP) basis the street uses. GAAP diluted EPS for this quarter was $6.68.
Compiled by AI from 10-Q Item 2 of this filing
Twilio released a significant portion of its U.S. valuation allowance, resulting in a $944.1 million income tax benefit and a deferred tax asset recognition.
Source: 10-Q Item 2 MD&A
The company recorded a $32.8 million impairment loss on prepaid network services after two service providers faced operational and financial challenges; this did not affect free cash flow.
Source: 10-Q Item 2 MD&A
Incremental A2P fees from major U.S. carriers increased both revenue and cost of revenue by $71.1 million each, creating a headwind to gross margin but no impact on gross profit.
Source: 10-Q Item 2 MD&A
DBNE improved to 116% from 108% a year ago, reflecting strong revenue growth from existing customers.
Source: 10-Q Item 2 MD&A
Research and development expenses grew 12% to $273.3 million, driven by higher cloud hosting fees for product staging and increased personnel costs.
Source: 10-Q Item 2 MD&A
Compiled by AI from 10-Q Item 1A of this filing · 3 high, 2 medium, 0 low
Adverse macroeconomic conditions, including inflation, trade tensions, and geopolitical instability, could reduce customer spending and usage of Twilio's primarily usage-based products, immediately impacting revenue.
Source: 10-Q Item 1A Risk Factors
Twilio's quarterly results are volatile due to the usage-based revenue model and external factors, making it difficult to meet analyst expectations and potentially causing stock price declines.
Source: 10-Q Item 1A Risk Factors
Most customers have no long-term contracts and can reduce or terminate usage without penalty, posing a risk of revenue declines if they switch to competitors or reduce spending.
Source: 10-Q Item 1A Risk Factors
Challenges in go-to-market strategies, such as longer enterprise sales cycles and increasing reliance on self-service channels, could hinder customer acquisition and expansion efforts.
Source: 10-Q Item 1A Risk Factors
Twilio must continuously innovate, particularly in AI-integrated communications, and ensure seamless integration with third-party platforms; failure to do so could render its products obsolete or less competitive.
Source: 10-Q Item 1A Risk Factors
| Metric | Current | Previous | YoY Change |
|---|---|---|---|
Revenue $B | 1.50 $B | 1.23 $B | +22.03% |
Cost of Revenue $M | 773.22 $M | 625.69 $M | +23.58% |
Gross Profit $M | 725.87 $M | 602.74 $M | +20.43% |
Operating Income $M | 84.55 $M | 36.99 $M | +128.57% |
Net Income $B | 1.067 $B | 0.022 $B | +4659.44% |
EPS (Basic) $ | 6.99 $ | 0.15 $ | +4560.00% |
EPS (Diluted) $ | 6.68 $ | 0.14 $ | +4671.43% |
R&D Expense $M | 273.32 $M | 243.50 $M | +12.25% |
Answers draw on this SEC filing and the data on this page
Expected release date, analyst estimates & what to watch
Twilio delivered strong Q1 FY2026 results with revenue surging 20.0% YoY to $1.41B and operating income jumping 366.5% to $107.7M, reflecting significant operating leverage improvements even as gross margin edged slightly lower.
Twilio delivered its first full-year GAAP operating profit in FY2025, with revenue growing 13.7% to $5.07B and operating cash flow surging 40.1% to $1.00B, marking a significant inflection toward profitability.