Is Twilio (NYSE:TWLO) Using Too Much Debt?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. We note that Twilio Inc. (NYSE:TWLO) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

When Is Debt Dangerous?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we think about a company's use of debt, we first look at cash and debt together.

View our latest analysis for Twilio

What Is Twilio's Net Debt?

As you can see below, Twilio had US$990.6m of debt, at December 2024, which is about the same as the year before. You can click the chart for greater detail. But it also has US$2.38b in cash to offset that, meaning it has US$1.39b net cash.

How Healthy Is Twilio's Balance Sheet?

The latest balance sheet data shows that Twilio had liabilities of US$820.2m due within a year, and liabilities of US$1.09b falling due after that. Offsetting these obligations, it had cash of US$2.38b as well as receivables valued at US$588.5m due within 12 months. So it can boast US$1.06b more liquid assets than total liabilities.

This surplus suggests that Twilio has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, Twilio boasts net cash, so it's fair to say it does not have a heavy debt load! There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if Twilio can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Over 12 months, Twilio reported revenue of US$4.5b, which is a gain of 7.3%, although it did not report any earnings before interest and tax. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

So How Risky Is Twilio?

Although Twilio had an earnings before interest and tax (EBIT) loss over the last twelve months, it generated positive free cash flow of US$657m. So taking that on face value, and considering the net cash situation, we don't think that the stock is too risky in the near term. With mediocre revenue growth in the last year, we're don't find the investment opportunity particularly compelling. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. To that end, you should be aware of the 1 warning sign we've spotted with Twilio .

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.