As CEO departs, Twilio investors should prepare for more changes

After many months of activist-investor pressure, Monday’s abrupt departure of Twilio Chief Executive Jeff Lawson is a likely precursor to more change, such as a possible sale of its data and applications unit.

Twilio’s shares
TWLO,
-1.33%
soared almost 7% on Monday on the news that Lawson, who also co-founded the communications-software company, was stepping down. Last year, two activist investors — first Legion Partners and then Anson Funds — acquired stakes in the company, and have advocated for either a sale of Twilio or its underperforming data and applications business.

“Twilio has struggled to reaccelerate the business as it has faced outsized macro headwinds and failed to execute on key growth initiatives,” William Blair analyst Arjun Bhatia told clients Monday. “We believe this executive change can be a positive for Twilio considering the ongoing challenges the business has faced over the past several quarters.”

A Twilio spokeswoman declined to comment beyond the company’s statement and a blog post by Lawson, in which he said the time had come “to pass the reins.”

Sagar Gupta, a portfolio manager at Anson Funds — and who was previously at Legion Partners — told MarketWatch in a statement that Lawson’s departure was a “step in the right direction.”

In Lawson’s successor, Khozema Shipchandler, who was previously president of Twilio, activists may find an executive who is less averse to spin-offs or outright sales. According to his LinkedIn profile, Shipchandler spent 22 years in various roles at an industrial conglomerate well known for its deal making: General Electric Co.
GE,
-0.53%

Lawson made some restructuring moves to address the slower growth in the data and applications business, which saw revenue growth of 9% in the third quarter of 2023, down from about 35% in fiscal 2022. But a restructuring, including laying off 5% of the company, and the planned departure of the president of the business, Elena Donio, has clearly not been enough for the activists.

Not all of Wall Street has been convinced that selling the business unit or the entire company is the right move. Macquarie Capital analyst Frederick Havemeyer told investors in late November that his “sum of parts” analysis concluded there would be a limited upside from breaking up Twilio, and a better strategy would be to use its data layer for its generative AI strategy, and to build highly personalized chatbots,
messaging campaigns, voice experiences and more.

Now, though, with Lawson out, there clearly will be more change afoot.

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