Under activist pressure on Twilio, Segment might be up for sale
Twilio’s venture into the customer data (CDP) business might be approaching a premature conclusion. Initially known for its communications software services provided via APIs, Twilio broadened its product range in recent years through acquisitions such as Segment, which enhanced its capabilities in the CDP arena.
However, following a significant slowdown in growth towards the end of 2023 and the departure of its founding CEO Jeff Lawson, Twilio has initiated “an extensive operational review” of Segment, as disclosed in its recent earnings call. When questioned by an analyst about the possibility of selling Segment, the company emphasized its strategic value but stated that it is approaching the review with an open mind. This stance doesn’t augur well for Segment’s long-term inclusion within the company.
During the latter part of Lawson’s tenure, Twilio faced pressure from activist investors Anson Funds and Legion Capital to divest assets and enhance shareholder value. Twilio’s share price skyrocketed to over $400 per share in 2021 but plummeted to $72.27 before the announcement of its fourth-quarter performance. Following the report, the stock price dropped another 15% to $61.15 per share, indicating investors’ dissatisfaction.
The question of whether Twilio will ultimately sell Segment remains unanswered. However, activists are banking on such a move to boost the parent company’s value by refocusing on its core communications business.
What is Segment worth?
In its latest earnings report, Twilio made organizational adjustments by relocating its “Flex and Marketing Campaigns products” to its Communications line of business. This move resulted in the restructuring of its former Data and Applications unit, which now operates under the Segment name. The Segment unit also encompasses some non-Segment initiatives, such as the company’s Engage products.
Twilio disclosed that its Segment unit generated $75 million in revenue in Q4 2023, marking a 4% increase from the $73 million reported in the year-ago quarter. However, its gross margin experienced a slight decline of 80 basis points to 74.4%. The unit posted a non-GAAP operating margin of –24.6% and witnessed its dollar-based net expansion rate improve by 2% to 96% compared to its Q4 2022 metrics.
