Braze (NASDAQ:BRZE) IPO’d in November to the same fanfare with which many of this year’s IPOs were faced. There was a lot of hype leading into the event and not a lot of bullish activity in its wake. Shares opened well above the intended high-end of the IPO range only to fall back in the following weeks and retest lows in that same range.
Now, in the wake of the company’s first earnings report as a publicly-traded company, the market tide seems to be turning again. The company exceeded all expectations and guided the market above consensus.
In our view, this company is not only well-positioned as a customer engagement platform but expected to grow at a hyper-growth pace, but it is also a prime candidate for takeover by companies like Salesforce.com (NYSE:CRM).
Braze Crushes The Consensus
Braze was expected to have a great quarter driven by the adoption of tech by consumer-oriented businesses. The company posted $63.97 million in net revenue for a gain of 62.6% over last year and beat the consensus estimate.
The company beat the consensus estimate by 1300 basis points on combining new users, renewals, and upsells to existing clients. On a segment basis, subscriptions rose by 61% to account for 92% of the revenue. In comparison, Professional/Services grew at a faster 88% YOY pace, and we see this pace of growth continuing if not accelerating.
Internally, the company’s client count grew 48% to 1,247, with a 44.7% increase in clients contributing more than $500K to revenue. The company’s net retention rate, a measure of churn and growth, came in at 126% and is up 200 basis points from last year, pointing to both high retention and improving client quality.
The company was also able to increase the gross margin on both a GAAP and adjusted basis. The GAAP margin improved by 670 basis points, the adjusted by 650, and both helped drive solid results on the bottom line. The GAAP and adjusted earnings both came in negative as was expected, but the GAAP loss of $0.42 is half the Marketbeat.com consensus, while the adjusted loss of $0.16 beat by $0.44.
Braze Moves Higher
While the Q3 results were outstanding, the guidance got shares of Braze moving higher. The company is forecasting revenue in the range of $65 to $66 million for a sequential gain of 1.6%. This is above the pre-release consensus and sparked some activity among the analysts.
JMP Securities reiterated the recently posted Outperform rating and upped its price target to $90, while Needham initiated the stock at Buy with the same target. This compares to the Marketbeat.com consensus of firm Buy with a price target of $89, a target that assumes 25% of upside is in store for this market.
In our view, if the company continues to perform as it has, the consensus will overtake the current high price target of $100 by the middle of calendar 2022.
The Technical Outlook
Shares of Braze are pulling back now but pulling back to a higher support level and confirming (we suspect) a reversal in the market. It’s still early in the stock’s life as a traded company, but it looks like a Double-Bottom formed at the $60-level, and price action is now moving higher.
The baseline appears to be near $71 and, if confirmed, would likely lead to another move higher and a retest of the $80 level. If the $80 can be surpassed, we see a move up to $95 and the post-IPO high happening reasonably quickly.
About Braze
Braze Inc provides a comprehensive customer engagement platform that powers interactions between consumers and brands. The company can ingest and process customer data in real-time, orchestrate and optimize contextually relevant, cross-channel marketing campaigns and continuously evolve its customer engagement strategies.