Customer engagement software provider Braze (NASDAQ:BRZE) reported revenue ahead of Wall Street’s expectations in Q3 CY2024, with sales up 22.7% year on year to $152.1 million. The company expects next quarter’s revenue to be around $155.5 million, close to analysts’ estimates. Its non-GAAP profit of $0.02 per share was $0.03 above analysts’ consensus estimates.
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Braze (BRZE) Q3 CY2024 Highlights:
- Revenue: $152.1 million vs analyst estimates of $148.2 million (22.7% year-on-year growth, 2.6% beat)
- Adjusted EPS: $0.02 vs analyst estimates of -$0.01 ($0.03 beat)
- Adjusted Operating Income: -$2.18 million vs analyst estimates of -$3.79 million (-1.4% margin, beat)
- Revenue Guidance for Q4 CY2024 is $155.5 million at the midpoint, roughly in line with what analysts were expecting
- Management raised its full-year guidance for revenue, adjusted operating income, and adjusted EPS
- Operating Margin: -21.4%, up from -28.3% in the same quarter last year
- Free Cash Flow was -$14.25 million, down from $7.23 million in the previous quarter
- Customers: 2,211, up from 2,163 in the previous quarter
- Net Revenue Retention Rate: 113%, down from 114% in the previous quarter
- Billings: $163.7 million at quarter end, up 30.2% year on year
- Market Capitalization: $4.26 billion
“We continued to execute in the third quarter, delivering strong revenue growth and operating leverage while maintaining steady investment in our product, our ecosystem, and our go-to-market motion to continue positioning Braze as the leading cross-channel customer engagement platform,” said Bill Magnuson, Cofounder and CEO of Braze.
Company Overview
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.
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.
Sales Growth
Examining a company’s long-term performance can provide clues about its quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Luckily, Braze’s sales grew at an exceptional 38.9% compounded annual growth rate over the last three years. Its growth beat the average software company and shows its offerings resonate with customers, a helpful starting point for our analysis.
This quarter, Braze reported robust year-on-year revenue growth of 22.7%, and its $152.1 million of revenue topped Wall Street estimates by 2.6%. Company management is currently guiding for a 18.7% year-on-year increase in sales next quarter.
Looking further ahead, sell-side analysts expect revenue to grow 17.1% over the next 12 months, a deceleration versus the last three years. Despite the slowdown, this projection is commendable and indicates the market is factoring in success for its products and services.
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Billings
Billings is a non-GAAP metric that is often called “cash revenue” because it shows how much money the company has collected from customers in a certain period. This is different from revenue, which must be recognized in pieces over the length of a contract.
Braze’s billings punched in at $163.7 million in Q3, and over the last four quarters, its growth was fantastic as it averaged 27.4% year-on-year increases. This performance aligned with its total sales growth, indicating robust customer demand. The high level of cash collected from customers also enhances liquidity and provides a solid foundation for future investments and growth. 
Customer Retention
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 115% in Q3. This means Braze would’ve grown its revenue by 15.2% 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.
Key Takeaways from Braze’s Q3 Results
We liked how Braze beat analysts’ billings expectations this quarter, which lead to beat on the revenue and adjusted operating profit lines. On the other hand, its customer growth slowed and revenue guidance for next quarter was just in line. Overall, we think this was still a solid quarter but we've seen many software companies (NET, ZS) decline on in-line revenue guidance. Shares traded down 9.2% to $38 immediately after reporting.
Is Braze an attractive investment opportunity right now? When making that decision, it’s important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it’s free.
