Solid execution amid a tough macro environment and some stabilization in marketing budgets last year led shares of Braze (BRZE)—a provider of a cloud-based, cross-channel customer engagement platform primarily for B2C brands—to a gain of 95%. In early December, the stock hit a new 52-week high of $58.67. The company’s recent results show steady demand at the upper end, where Braze is going up against some large competitors.
Braze has been navigating a challenging public market since its IPO in November 2021 at $65 a share. Just days after the Braze offering, the Nasdaq reached its all-time peak. By early November 2022, Braze shares had fallen to a post-IPO low of $22.53. In May of last year, the stock traded as low as $25.76 before beginning a steady recovery, powered by solid revenue growth, gross margin improvement and strength in the important enterprise business.
With Braze shares recently trading around $54, the company’s enterprise value is 10.5 times the FY’24 (Jan.) consensus revenue estimate of $465.6 million (representing growth of 31%) and 8.6x the FY’25 consensus of $572 million. For the coming fiscal year, analysts on average only expect top-line growth of 22.8%, which could turn out to be overly conservative, especially if the SMB portion of the business begins to turn around. In 2023, it was quite tough to keep SMB customers and add new ones.
In contrast, Braze’s enterprise unit has held up fairly well. Large brands clearly recognize the significant ROI achieved through personalized, cross-channel customer engagement. Top brands are using the Braze platform to deliver increased value and relevance to their customers, both by understanding the real-time context of each marketing interaction and by leveraging their first-party data via AI-driven orchestration and personalization, according to Braze CEO Bill Magnuson.
In FQ3 (Oct.), Braze’s total revenue gained 29% on an organic basis (the company had $3.5 million of added revenue in the quarter from the June 2023 acquisition of its Australian reseller), with growth powered by the enterprise business. The company has a total customer base of more than 2,000. There are 189 customers with total annual recurring revenue (ARR) above $500k, up 28% year over year. These large accounts represent 58% of Braze’s total ARR.
Within the enterprise unit, Braze has been capitalizing on the legacy vendor replacement cycle and consolidation trend. Braze has had success when it comes to displacing Adobe (ADBE) and Salesforce (CRM) solutions. Magnuson claims large organizations are increasingly switching over to the Braze platform because these legacy vendors have been slow to innovate in the marketing space and often have omnichannel capabilities that have been cobbled together through acquisitions.
Braze’s enterprise customers (including Shake Shack, Taco Bell, CVS and Etsy) use the company’s platform for targeted promotional campaigns and transactional messaging (such as order status updates). Brands can test various types of messaging before they go live. In addition to providing channel-specific content recommendations, the platform has the ability to forecast which messaging variants are likely to perform best by using custom-trained predictive models.
Braze introduced its first AI-based feature about 10 years ago, then added a number of predictive capabilities in early 2021. Last June, Braze introduced Sage AI to power even more comprehensive AI functionality, including improved messaging personalization that provides tailored content to reduce churn, increase loyalty and drive revenue. Brands can send customers the content that’s most likely to resonate with them at the right time of day for best engagement.
For product and marketing teams, Braze’s new Feature Flags offering allows users to quickly launch, test and optimize features on mobile apps or websites, providing flexibility to test varying versions of a product without deploying extra code or submitting an update to an app store. Sold into CPO or CTO budgets (instead of CMO budgets), Feature Flags can be used to coordinate feature releases with cross-channel messaging that drives awareness and adoption.
Bullish Wall Street price targets for Braze generally range between $60 and $80. Piper Sandler recently lifted its target to $66 from $57, calling out continued solid execution, favorable vendor consolidation tailwinds and healthy expansion trends across verticals. Needham upped its target to $70 from $60, noting that enterprise net retention is still over 120%. Loop Capital went to $75 from $65 based on signs of stability in the business, pointing to FQ3 RPO growth of 37%.
