Braze: Strong Secular Tailwinds That Drive Long-Term Growth

Core Viewpoint - BRZE is positioned for strong growth driven by secular tailwinds in customer engagement solutions, with a projected revenue growth rate exceeding 30% in the coming years, despite macroeconomic challenges [4][10]. Revenue Growth - Total revenue for BRZE grew 33% year-over-year to $135.5 million, with subscription revenue increasing by 34% to $130 million, surpassing consensus expectations by 300 basis points [9]. - The company expects revenue growth to remain robust, supported by strong demand for personalized customer interactions and an expanding sales team [10]. Valuation Metrics - In the base case, BRZE is expected to trade at a forward revenue multiple of 5x, which is its current trading multiple, reflecting a premium compared to peers like HubSpot and Salesforce [3]. - The bull case suggests that BRZE could trade at 8x forward revenue, aligning with its historical average, if it maintains growth above 30% and improves its profit profile [3]. Profitability - Pro forma gross margins improved to 67.9%, a 110 basis point increase from the previous quarter, driven by revenue growth and cost optimizations [9]. - The pro forma EBIT margin improved significantly by over 800 basis points to -7.4%, indicating a positive trend in profitability despite previous losses [9]. Market Position - BRZE operates in a competitive landscape that includes established players like Adobe and Salesforce, as well as newer entrants like Airship and MailChimp [6]. - The company's unique offering allows for multi-channel, real-time customer engagement, differentiating it from traditional marketing solutions that often rely on single-channel approaches [7]. Customer Engagement Trends - There is a growing demand for personalized, real-time customer interactions, driven by advancements in cloud computing and mobile technology [10]. - The shift towards digital brand experiences and the increasing importance of first-party data are key trends that BRZE is well-positioned to capitalize on [10]. Financial Outlook - The dollar-weighted contract length remains above two years, indicating stable demand and customer retention [10]. - The company is expected to continue its growth trajectory, with consensus estimates projecting a significant step down in growth rates that may not materialize given BRZE's current performance [10].