Will Twilio record a goodwill impairment charge in FY2025 or FY2026?

The Q4 earnings provided three important data points: (1) Segment grew 2% in FY2025, the first positive growth in 5+ years — this is the strongest reduction in impairment probability since the market was created. (2) Twilio achieved $158M GAAP profitability in FY2025, which generally reduces pressure for asset write-downs. (3) The $81M equity method investment impairment demonstrates management willingness to take charges when warranted, which slightly increases the probability they would take a goodwill impairment if the testing demanded it — but also suggests that if goodwill passed the annual test, they would not have voluntarily impaired it. The FY2025 10-K is expected within weeks and will contain the annual goodwill test. Segment's 2% growth, while modest, provides management and auditors the narrative that the trajectory is improving. The DBNE trend (93% to 95%, now presumably continuing upward) further supports this. On balance, the positive growth development moderately reduces impairment probability from the initial 20%.

The combination of Segment's first positive revenue growth (2%) and Twilio's overall GAAP profitability ($158M) significantly reduces the near-term impairment risk for the FY2025 annual test. The FY2025 10-K filing is imminent (expected within weeks), and management would have likely flagged any goodwill concerns in the Q4 earnings if the annual test had failed or was at risk. The absence of any goodwill impairment language in the earnings press release or call is a positive signal — companies are required to disclose material known uncertainties, and goodwill impairment in the tens or hundreds of millions would qualify. The equity method investment impairment ($81M) actually demonstrates the disclosure norm: when impairment occurs, it appears in the earnings materials. The second-order effect is that Segment integration into functional reporting units may have already occurred, meaning the goodwill test would use a larger, healthier combined reporting unit where enterprise value provides ample cushion. The FY2026 test remains the higher-risk period (if Segment growth stalls or reverses), but the 2-year cumulative probability should decrease from 20% to approximately 15-17%.

The calibration feedback from resolved sibling markets provides useful context. The ensemble performed excellently on quantitative/process questions (organic growth Brier 0.0121, gross margin Brier 0.1156) but poorly on management behavior prediction (guidance Brier 0.4624). Goodwill impairment sits between these categories — it's partly a quantitative/accounting process (does fair value exceed carrying value?) and partly a management behavior question (how aggressively will they defend against impairment?). The quantitative side has improved: Segment at 2% growth with improving DBNE provides better support for fair value. The management behavior side is mixed: the $81M equity method impairment shows they take charges when warranted, but the overall GAAP profitability and improving trajectory give them strong incentive and defensible reason to avoid goodwill impairment. On balance, the new data modestly reduces probability from 20% but the resolution window still extends to FY2026, maintaining a non-trivial tail risk.

Segment's 2% FY2025 revenue growth is the single most important new data point. The initial prediction was anchored on the two-year window multiplier applied to the Black Swan Beacon's 10-15% single-period estimate. With Segment now showing positive growth for the first time in 5+ years, the per-period impairment probability decreases. The FY2025 annual test is imminent (10-K expected within weeks), and the absence of goodwill impairment language in the Q4 earnings materials is a strong negative signal for impairment (i.e., it likely passed). The $81M equity method impairment is informative but orthogonal — it's a different asset class and does not indicate goodwill testing concerns. GAAP profitability of $158M further reduces the narrative pressure for impairment charges. The primary remaining risk is the FY2026 test period, where a macro downturn or Segment growth reversal could trigger impairment. Reducing from 20% to approximately 16%.

While the new data is modestly positive (2% Segment growth, GAAP profitability), I'm cautious about over-adjusting from a modest improvement. The fundamental issue — $3.2B paid for a business with 2% revenue growth — has not been resolved. DBNE is still presumably below 100% (no Q4 data due to reporting discontinuation), meaning the customer base is still contracting even with overall revenue slightly up (likely from pricing rather than volume). The resolution window extends through FY2026 10-K (March 2027), meaning there's still 13 months of exposure. The macro environment, CDP competitive landscape, and potential leadership changes all remain sources of impairment catalysts. The equity method impairment ($81M) is a data point showing management will take charges, which marginally increases the conditional probability that they would impair goodwill IF the test fails. However, the lower prior probability that the test fails (given 2% growth) more than offsets this. Net reduction of ~2pp from the initial 20%.

The convergence of positive signals is meaningful: (1) Segment at 2% growth vs. 0% previously, (2) GAAP profitability of $158M, (3) no goodwill impairment language in earnings, (4) FCF acceleration to $945M, (5) SBC declining to 11.3%. Companies with improving financial trajectories across the board are very unlikely to voluntarily impair goodwill. The FY2025 annual test appears highly likely to pass based on the earnings disclosure norms — material goodwill impairment would have been discussed. The remaining risk is the FY2026 test, but with improving Segment trajectory and strong overall company performance, the bar for triggering impairment in FY2026 is higher. A macro shock or Segment growth reversal would be needed. The Black Swan Beacon's original 10-15% per-period estimate was premised on 0% Segment growth; with 2% growth, the per-period estimate drops to approximately 7-10%, giving a two-year cumulative of roughly 14-19%. Taking the lower end given the improving trend.

Segment grew 2% in FY2025 — first positive growth in 5+ years. This is the key impairment-reducing signal. GAAP profitability of $158M and no goodwill language in earnings suggest the FY2025 annual test passed. The $81M equity method impairment shows management takes charges when warranted, but the absence of goodwill impairment in the same filing period is informative. Two-year resolution window still maintains some risk but the per-period probability has decreased. Reducing from 20% to approximately 16%.

The FY2025 10-K is imminent and management gave no indication of goodwill concerns. Companies with GAAP profitability, $945M FCF, and improving segment metrics do not voluntarily impair goodwill. The institutional resistance to impairment, combined with improving fundamentals, makes this increasingly unlikely. The $3.2B acquisition is still economically questionable (2% growth on $3.2B invested), but accounting impairment requires fair value below carrying value at the reporting unit level — and the reporting unit likely includes more than just Segment now. Enterprise value provides ample cushion.

The two-year resolution window is still the key differentiator. Even though FY2025 impairment looks very unlikely (no earnings language, 2% growth, GAAP profitability), the FY2026 test adds incremental probability. Macro shocks, CDP competitive pressure, or management changes could trigger impairment in FY2026 even if FY2025 passes clean. Using a reduced per-period estimate of ~8% (down from 10-15% with 0% growth) and compounding over two periods gives approximately 15-17%. Taking 17% as a moderate estimate that accounts for the improving trend but acknowledges the extended resolution window.