Goldman Sachs upgrades Twilio, sees more than 35% upside ahead

Although Goldman Sachs upgraded its rating on Twilio shares on Friday, it argued that the stock has more room to run. The firm also changed its recommendation on the shares to buy from neutral. Moreover, the analyst, Kash Rangan, lifted his price target to $185 per share from $77, suggesting that the shares could climb by 35.8% from the closing price of the last trade. TWLO YTD mountain The cloud communication stock made its biggest gain since 2020 at the end of last week. This was a day after the company revised its forward earnings guidance at its analyst day. Twilio also announced plans to cut costs and generate $3 billion in free cash flow over the next three years, compared to generating $692 million in free cash flow between 2022, 2023, and 2024. "After several years of revenue deceleration and implementing several strategic measures, the company, in our view, has reached a turning point from the perspective of both the story and financials," Rangan wrote in a research note on Sunday. Despite the recent strength in the stock, potential improvements in the revenue growth outlook combined with a more defined strategy and new AI innovations could still offer further upside, according to the analyst. "We believe that the turnaround story at Twilio has begun, and there is potential for good growth in revenue and free cash flow in CY25, while the stock remains relatively cheap," Rangan noted. In January, the shares have risen by 26%; over the past 12 months, they have risen by 89.5%. The stock is still considered somewhat risky by analysts. According to LSEG, 31 analysts cover Twilio, and of these, 18 have given the stock a buy or strong buy rating, while the other 13 have given it a hold or underperform rating. The stock was also upgraded by Baird last week, and the firm issued an outperform rating on the stock, with about 40% upside.