Twilio shares edge lower after RBC analysts cut rating

Investing.com -- Shares in Twilio Inc (NYSE:TWLO) inched down on Monday after analysts at RBC Capital Markets downgraded their rating of the cloud computing platform operator, citing "too much optimism" around the stock.

In a note to clients, the RBC analysts lowered their outlook for San Francisco-based Twilio to "underperform" from "sector perform," and decreased their price target for the stock to $50 from $55.

The analysts said that Twilio, which provides programmable communication tools such as chat boxes, faces "significantly more" competition that could make it harder for the company to charge a premium relative to its rivals.

Meanwhile, the company will likely have to invest heavily in research and development to differentiate itself from its competitors, the RBC analysts flagged. These trends could subsequently weigh on margins, the RBC analysts warned.

"Structurally, we believe Twilio may struggle to reach even mid-teens [free cash flow] margins under the current regime," they said.

Meanwhile, the analysts argued that they do not believe Twilio will be a long-term beneficiary of generative artificial intelligence (AI), saying any benefits from the new technology will likely "be temporary in nature."

When putting these and other factors together with a recent uptick in Twilio's share price, the analysts said they see "an unfavorable risk/reward profile."