Jeff Lawson, the co-founder and CEO of cloud communications platform Twilio, has stepped down from his role as chief executive after more than 13 years leading the company he started. Twilio has appointed fellow co-founder and COO Khozema Shipchandler as the new CEO, effective immediately.
The sudden leadership change comes amid ongoing pressure from activist investors to boost Twilio’s stock price and profitability. While Twilio has been a high-growth business, its shares have plunged nearly 80% over the past year as profits remained elusive. This likely triggered the CEO switch.
CEO Transition Follows Stock Struggles, Activist Battles
Lawson co-founded Twilio in 2008 and has been CEO ever since, quickly turning it into a leading provider of communication APIs used by major companies. However, Twilio has consistently lost money even as revenue grew rapidly.
The company’s stock price peaked above $400 in early 2021 but has since crashed below $70 per share. Twilio posted a net loss of $1 billion in 2022 amid restructuring charges and its lowest revenue growth rate since going public.
This led activist investors like Sachem Head and Jana Partners to take major stakes in Twilio and push for improved financial performance. After failed private talks, Jana publicly called for cost cuts and board seats last November.
Lawson initially resisted the activists’ demands, but continued stock declines and poor results ultimately led the board to seek new leadership. Appointing Shipchandler, a 10-year veteran and chief architect of Twilio’s financial strategy, indicates a focus on margins and profit going forward.
New CEO Seen as Operational Leader to Boost Profits
The appointment of Shipchandler as CEO signals that Twilio’s board wants an operational leader at the helm to focus the company on efficient growth and profitability.
|Founder & Product Vision
As an early engineer and later CFO, Shipchandler oversaw key parts of Twilio’s global expansion and designed financial frameworks to analyze business units. He does not have Lawson’s entrepreneurial product background but knows how to assess performance and allocate resources using robust data.
Cowen analyst Dhingra expects Shipchandler to bring “increased operational rigor and financial discipline” to decision making at Twilio. This likely means optimizing processes around sales, customer support and R&D to reduce excess spending.
Employee morale and retention could become an issue during this transition, however, as staff expect changes under the new regime. But analysts say Shipchandler has strong internal credibility from being part of the leadership team for so long.
What Industry Experts Expect Going Forward
Industry observers see Shipchandler getting Twilio’s financial house in order after years of heavy spending and losses. There is faith he can guide the company to profitability soon while still capturing long-term market opportunities.
Some analysts predict significant cost reductions this year, including possible job cuts. Cowen’s Dhingra estimates Twilio can increase 2024 operating margins to 15% from under 2% now through various initiatives:
- Optimize sales productivity
- Streamline customer onboarding
- Consolidate real estate footprint
- Carefully manage headcount
Shareholders also want to see gross margin expansion, which eroded in 2022. KeyBanc analyst Clifford thinks Twilio can achieve 60%+ gross margins again by improving pricing discipline and shiftingtowards higher-value products.
Meanwhile, Twilio reiterated full-year 2023 revenue guidance of $3.175 billion to $3.225 billion – which would mean 16% growth at the midpoint. The company also said Q4 earnings will exceed previous expectations. This guidance was likely meant to assure investors near-term momentum will continue through the transition.
If Shipchandler executes well, analysts see Twilio shares potentially doubling over the next year. But the new CEO faces high expectations to revive both financial performance and investor confidence in the company’s future.
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