326378

Braze (NASDAQ:BRZE) Beats Q4 Sales Targets, Next Quarter Sales Guidance Is Optimistic


Full Report / March 27, 2024

Customer engagement software provider Braze (NASDAQ:BRZE) reported Q4 CY2023 results beating Wall Street analysts' expectations, with revenue up 32.7% year on year to $131 million. Guidance for next quarter's revenue was also optimistic at $131.5 million at the midpoint, 2.9% above analysts' estimates. It made a non-GAAP loss of $0.04 per share, improving from its loss of $0.14 per share in the same quarter last year.

Braze (BRZE) Q4 CY2023 Highlights:

  • Revenue: $131 million vs analyst estimates of $124.6 million (5.1% beat)
  • EPS (non-GAAP): -$0.04 vs analyst estimates of -$0.05
  • Revenue Guidance for Q1 CY2024 is $131.5 million at the midpoint, above analyst estimates of $127.8 million
  • Management's revenue guidance for the upcoming financial year 2025 is $572.5 million at the midpoint, in line with analyst expectations and implying 21.3% growth (vs 32.7% in FY2024)
  • However, Management's operating loss guidance for the upcoming financial year 2025 is a loss of $22.0 million at the midpoint, worse than analyst expectations 
  • Gross Margin (GAAP): 67.2%, up from 66.1% in the same quarter last year
  • Free Cash Flow was -$3.54 million compared to -$5.91 million in the previous quarter
  • Net Revenue Retention Rate: 117%, in line with the previous quarter
  • Customers: 2,044, up from 2,011 in the previous quarter
  • Market Capitalization: $4.93 billion

Founded in 2011 after the co-founders met at NYC Disrupt Hackathon, Braze (NASDAQ:BRZE) is a customer engagement software platform that allows brands to connect with customers through data-driven and contextual marketing campaigns.

Braze’s co-founders were driven by two core beliefs - that new businesses would be born and built mobile-first and that changing consumer behaviors would force businesses to change how they deliver products and services. The Braze platform aimed to ingest consumer data and create multi-channel marketing campaigns in order to improve customer engagement.

Braze’s software is designed to listen, understand, and act. Listening involves collecting consumer data from websites and applications and building consumer profiles. Understanding involves building detailed audience segments (demographics, past behaviors, etc.) and generating messaging that speaks to these segments. Acting involves executing marketing campaigns across email, SMS, mobile push notifications or embedded content cards in a website or application that are relevant and effective.

Marketing Software

Whether or not companies market their products through social media, all businesses need to meet customers where they are; and increasingly, that is social media. As more and more people use a greater number of social media platforms, social media management software become more valuable to their customers.

Competitors addressing the customer engagement need include scaled platforms such as Adobe (NASDAQ:ADBE) and Salesforce.com (NYSE:CRM) as well as private companies such as Airship, MoEngage, and Leanplum.

Sales Growth

As you can see below, Braze's revenue growth has been impressive over the last three years, growing from $42.93 million in Q4 2021 to $131 million this quarter.

Braze Total Revenue

Unsurprisingly, this was another great quarter for Braze with revenue up 32.7% year on year. However, its growth did slow down compared to last quarter as the company's revenue increased by just $7.00 million in Q4 compared to $8.85 million in Q3 CY2023. While we'd like to see revenue increase by a greater amount each quarter, a one-off fluctuation is usually not concerning.

Next quarter's guidance suggests that Braze is expecting revenue to grow 29.2% year on year to $131.5 million, in line with the 31.3% year-on-year increase it recorded in the same quarter last year. For the upcoming financial year, management expects revenue to be $572.5 million at the midpoint, growing 21.3% year on year compared to the 32.7% increase in FY2024.

Customer Growth

Braze reported 2,044 customers at the end of the quarter, an increase of 33 from the previous quarter. , suggesting that the company's customer acquisition momentum is slowing.

Braze Customers

Product Success

One of the best parts about the software-as-a-service business model (and a reason why SaaS companies trade at such high valuation multiples) is that customers typically spend more on a company's products and services over time.

Braze Net Revenue Retention Rate

Braze's net revenue retention rate, a key performance metric measuring how much money existing customers from a year ago are spending today, was 117% in Q4. This means that even if Braze didn't win any new customers over the last 12 months, it would've grown its revenue by 17%.

Despite falling over the last year, Braze still has a good net retention rate, proving that customers are satisfied with its software and getting more value from it over time, which is always great to see.

Profitability

What makes the software as a service business so attractive is that once the software is developed, it typically shouldn't cost much to provide it as an ongoing service to customers. Braze's gross profit margin, an important metric measuring how much money there's left after paying for servers, licenses, technical support, and other necessary running expenses, was 67.2% in Q4.

Braze Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.67 left to spend on developing new products, sales and marketing, and general administrative overhead. Braze's gross margin is poor for a SaaS business and it's dropped significantly since the previous quarter. This is probably the exact opposite of what shareholders would like to see.

Cash Is King

If you've followed StockStory for a while, you know that we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can't use accounting profits to pay the bills. Braze burned through $3.54 million of cash in Q4 , reducing its cash burn by 84.1% year on year.

Braze Free Cash Flow

Braze has burned through $6.49 million of cash over the last 12 months, resulting in a negative 1.4% free cash flow margin. This low FCF margin stems from Braze's constant need to reinvest in its business to stay competitive.

Key Takeaways from Braze's Q4 Results

We enjoyed seeing Braze exceed analysts' revenue expectations this quarter. We were also glad next quarter's revenue guidance came in higher than Wall Street's estimates. On the other hand, its revenue guidance for next year suggests a significant slowdown in demand and its gross margin shrunk. An additional negative is that full year operating loss guidance was worse than expectations. Zooming out, we think this was still a decent, albeit mixed, quarter, showing that the company is staying on track. The stock is flat after reporting and currently trades at $50.5 per share.

Is Now The Time?

When considering an investment in Braze, investors should take into account its valuation and business qualities as well as what's happened in the latest quarter.

We think Braze is a good business. We'd expect growth rates to moderate from here, but its revenue growth has been exceptional over the last three years. And while its growth is coming at a cost of significant cash burn, the good news is its customers are increasing their spending quite quickly, suggesting they love the product. On top of that, its efficient customer acquisition is better than many similar companies.

Given its price-to-sales ratio of 8.7x based on the next 12 months, the market is certainly expecting long-term growth from Braze. There are definitely a lot of things to like about Braze, and looking at the tech landscape right now, it seems to be trading at a reasonable price.

Wall Street analysts covering the company had a one-year price target of $69.63 right before these results (compared to the current share price of $50.50), implying they see short-term upside potential in Braze.

To get the best start with StockStory, check out our most recent Stock picks, and then sign up for our earnings alerts by adding companies to your watchlist here. We typically have the quarterly earnings results analyzed within seconds of the data being released. Especially for companies reporting pre-market, this often gives investors the chance to react to the results before everyone else has fully absorbed the information.