Twilio Stock Forecast: TWLO's 10% rally on back of layoffs has legs

Twilio (TWLO) stock rallied 10% on Wednesday to close at $77.97. The excitement stems from some bad news for workers. The company said it would lay off approximately 11% of its workforce in order to make a more direct attempt to reduce operating losses.

With more than 8,500 employees, it is thought that between 900 and 1,000 workers will be let go. The customer service software firm said that most of the cuts would be in the third and fourth quarters but that some might extend into early 2023. This is significant since Twilio is expected to run its first full-year profit in 2023. Analysts have a consensus figure of $0.17 per share in 2023.

The firm said that it will take charges of between $70 and $90 million in the third quarter related to the downsizing and that $55 to $70 million will involve cash.

Twilio stock forecast

Twilio stock rebounded so strongly not just because the market thinks the cuts will help it achieve profitability faster, but TWLO stock was already sitting on long-term support. The region from approximately $64 to $74 is a long-term demand zone from 2018. It again helped TWLO stock find footing during the 2020 covid panic in March of that year. The market was just looking for a reason to rebound. 

Additionally, there is a divergence between the Relative Strength Index (RSI) and the weekly price chart below. Since about March Twilio stock has been experiencing lower lows. However, at the same time on the RSI it was experiencing higher lows. This divergence pattery typically signals a reversal.

Late June and early August both saw range highs that topped out in the supply zone between $98 and $102. That is the first point of resistance. The second resistance zone stems from the supply zone between $108 and $111. Both of these regions are points at which to take profit for any bulls out there

TWLO daily chart