Braze (BRZE)

Customer engagement platform Braze (NASDAQ:BRZE) reported Q2 CY2025 results beating Wall Street’s revenue expectations, with sales up 23.8% year on year to $180.1 million. Guidance for next quarter’s revenue was optimistic at $184 million at the midpoint, 2.1% above analysts’ estimates. Its non-GAAP profit of $0.15 per share was significantly above analysts’ consensus estimates.

Company Overview

With its technology powering interactions with 6.2 billion monthly active users across the digital landscape, Braze (NASDAQ:BRZE) provides a platform that helps brands build and maintain direct relationships with their customers through personalized, cross-channel messaging and engagement.

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.

Braze competes with legacy marketing cloud platforms like Adobe Experience Cloud and Salesforce Marketing Cloud, as well as customer engagement specialists such as Airship, Iterable, Klaviyo, CleverTap, and MoEngage. As customer engagement evolves, Braze also increasingly competes with customer data platforms and specialized messaging providers.

A company’s long-term performance is an indicator of its overall quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Thankfully, Braze’s 39.9% annualized revenue growth over the last five years was exceptional. Its growth beat the average software company and shows its offerings resonate with customers, a helpful starting point for our analysis.

Long-term growth is the most important, but within software, a half-decade historical view may miss new innovations or demand cycles. Braze’s annualized revenue growth of 26.6% over the last two years is below its five-year trend, but we still think the results suggest healthy demand.

This quarter, Braze reported robust year-on-year revenue growth of 23.8%, and its $180.1 million of revenue topped Wall Street estimates by 5%. Company management is currently guiding for a 21% year-on-year increase in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 19.2% over the next 12 months, a deceleration versus the last two years. Still, this projection is admirable and suggests the market sees success for its products and services.

While reported revenue for a software company can include low-margin items like implementation fees, annual recurring revenue (ARR) is a sum of the next 12 months of contracted revenue purely from software subscriptions, or the high-margin, predictable revenue streams that make SaaS businesses so valuable.

Braze’s ARR punched in at $687.2 million in Q2, and over the last four quarters, its growth was impressive as it averaged 21.9% year-on-year increases. This performance aligned with its total sales growth and shows that customers are willing to take multi-year bets on the company’s technology. Its growth also makes Braze a more predictable business, a tailwind for its valuation as investors typically prefer businesses with recurring revenue.

Braze reported 2,422 customers at the end of the quarter, a sequential increase of 80. That’s a little better than last quarter and quite a bit above the typical growth we’ve seen over the previous year. Shareholders should take this as an indication that Braze’s go-to-market strategy is working well.

The customer acquisition cost (CAC) payback period measures the months a company needs to recoup the money spent on acquiring a new customer. This metric helps assess how quickly a business can break even on its sales and marketing investments.

It’s relatively expensive for Braze to acquire new customers as its CAC payback period checked in at 71.1 months this quarter. The company’s slow recovery of its sales and marketing expenses indicates it operates in a competitive market. A silver lining is that once it acquires its customers, they typically don’t leave and increase their spending - a sign of high switching costs.

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

Braze’s net revenue retention rate, a key performance metric measuring how much money existing customers from a year ago are spending today, was 110% in Q2. This means Braze would’ve grown its revenue by 10.3% even if it didn’t win any new customers over the last 12 months.

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.

For software companies like Braze, gross profit tells us how much money remains after paying for the base cost of products and services (typically servers, licenses, and certain personnel). These costs are usually low as a percentage of revenue, explaining why software is more lucrative than other sectors.

Braze’s gross margin is worse than the software industry average, giving it less room than its competitors to hire new talent that can expand its products and services. As you can see below, it averaged a 68.8% gross margin over the last year. Said differently, Braze had to pay a chunky $31.21 to its service providers for every $100 in revenue.

The market not only cares about gross margin levels but also how they change over time because expansion creates firepower for profitability and free cash generation. Braze has seen gross margins improve by 0.8 percentage points over the last 2 year, which is slightly better than average for software.

This quarter, Braze’s gross profit margin was 67.7%, down 2.5 percentage points year on year. On a wider time horizon, the company’s full-year margin has remained steady over the past four quarters, suggesting its input costs have been stable and it isn’t under pressure to lower prices.

Braze’s expensive cost structure has contributed to an average operating margin of negative 20.3% over the last year. This happened because the company spent loads of money to capture market share. As seen in its fast revenue growth, the aggressive strategy has paid off so far, and Wall Street’s estimates suggest the party will continue. We tend to agree and believe the business has a good chance of reaching profitability upon scale.

Over the last two years, Braze’s expanding sales gave it operating leverage as its margin rose by 4.9 percentage points. Still, it will take much more for the company to reach long-term profitability.

In Q2, Braze generated a negative 21.5% operating margin.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

Braze has shown poor cash profitability over the last year, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 4.2%, lousy for a software business.

Braze’s free cash flow clocked in at $3.53 million in Q2, equivalent to a 2% margin. The company’s cash profitability regressed as it was 3 percentage points lower than in the same quarter last year, but we wouldn’t read too much into the short term because investment needs can be seasonal, causing temporary swings. Long-term trends trump fluctuations.

Over the next year, analysts predict Braze’s cash conversion will slightly improve. Their consensus estimates imply its free cash flow margin of 4.2% for the last 12 months will increase to 6.8%, it options for capital deployment (investments, share buybacks, etc.).

One of the best ways to mitigate bankruptcy risk is to hold more cash than debt.

Braze is a well-capitalized company with $364.9 million of cash and $84.42 million of debt on its balance sheet. This $280.5 million net cash position is 7.8% of its market cap and gives it the freedom to borrow money, return capital to shareholders, or invest in growth initiatives. Leverage is not an issue here.

We were impressed by how significantly Braze blew past analysts’ billings expectations this quarter. We were also glad its customer growth accelerated. On the other hand, its revenue guidance for next quarter was in line. Zooming out, we think this was a solid print. The stock remained flat at $32.13 immediately following the results.

Updated: December 4, 2025 at 9:22 PM EST

A common mistake we notice when investors are deciding whether to buy a stock or not is that they simply look at the latest earnings results. Business quality and valuation matter more, so we urge you to understand these dynamics as well.

There’s plenty to admire about Braze. To kick things off, its revenue growth was exceptional over the last five years. And while its operating margins reveal poor profitability compared to other software companies, its splendid ARR growth shows it’s securing more long-term contracts and becoming a more predictable business.

Braze’s price-to-sales ratio based on the next 12 months is 4x. Looking at the software space right now, Braze trades at a compelling valuation. If you trust the business and its direction, this is an ideal time to buy.

Wall Street analysts have a consensus one-year price target of $45.11 on the company (compared to the current share price of $29.90), implying they see 50.9% upside in buying Braze in the short term.