Summary
- We look back on Braze, Inc. for the first time in nearly a year today.
- This subscription-driven tech concern continues to post impressive revenue growth but the stock is down some 20% since our first piece on it.
- Is Braze in the 'buy zone' yet? An investment analysis follows in the paragraphs below.
When you combine ignorance and leverage, you get some pretty interesting results ."? Warren Buffett
Our first article on Braze, Inc. (BRZE) was posted nearly one year ago. We passed on any investment recommendation around this small tech concern despite impressive revenue growth due to valuation. With the stock down approximately 20% since our first post on it and revenue growth near 50% projected for the current fiscal year, it is time to circle back on Braze. An updated analysis follows below.
Company Overview:
Big Apple headquartered Braze develops data ingestion, data notification, classification and other product offerings that enable customer-centric interactions between consumers and brands in real-time. The company provides an integrated platform that allows their users to better tailor their campaigns more to the nuances of their individual businesses and more effectively interact with their customers. Over 95% of the company's overall revenue comes from subscription services and just over 55% of total revenue comes from within the United States. The stock currently trades around $33.00 a share and sports an approximate market capitalization of $3 billion.
Third Quarter Results:
On December 13th, Braze posted its third quarter numbers . Revenues rose just over 45% on a year-over-year basis to just over $93 million, just above expectations. The company had a non-GAAP net loss of 15 cents a share, which was seven cents a share above the consensus.
December Company Presentation
The company had 148 separate customers providing it $500,000 or more in annual revenue, compared to just 97 in the same period a year ago and contributed 56% of overall sales. Total customers rose to 1,715 from 1,247. Non-GAAP Gross Margin did slip a tad to 69.7% and Braze's GAAP operating loss increase to $36.9 million compared to an operating loss of $10.4 million in the third quarter of the previous year. $19.3 million of this variance was due to stock compensation expense. The rest was driven by increasing headcount costs and onetime hosting migration costs.
December Company Presentation
Management provided the following forward guidance which sees sales growth slowing to 36% in Q4. Leadership noted ' challenges manifested in elongated sales cycles, slower new business growth and fewer multiyear contracts ' for the reduced growth even as their full year outlook was bumped up a bit.
December Company Presentation
Analyst Commentary & Balance Sheet:
Since third quarter results came in, 14 analyst firms, including UBS, Needham and Piper Sandler, have reissued Buy/Outperform ratings on the stock. A majority did contain downward price target revisions it should be noted. Price targets proffered ranged from $30 to $50 a share. D.A. Davidson initiated the shares as a Neutral in mid-February with a $34 price target as well.
Approximately seven percent of the outstanding float in the shares are currently held short. A beneficial owner added more than $15 million to their stake in the firm last September in the mid $30s. Several company officers that month also made several much smaller purchases as well. They disposed of nearly $2 million worth of shares in the fourth quarter, but less than $150,000 so far in 2023.
December Company Presentation
The company ended the third quarter of 2022 with just over $475 million in cash and marketable securities on its balance sheet against no long-term debt. Braze posted a non-GAAP operating loss of $17.3 million during the quarter and had negative free cash flow of just over $28 million.
Verdict:
The current analyst firm consensus has the company losing 68 cents a share this fiscal year even as revenues rise 48% to $352 million. The coming fiscal year, they project sales growth will slow to just over 25% while losses will decline by 10 cents a share.
As I have noted in recent articles around profitless growth stocks recently, 'T his is not a TINA (There Is No Alternative) market anymore with six-month T-bills yielding five percent for the first time since 2007. The much higher level of rates is going to be a headwind for valuations '.
December Company Presentation
Braze trades at approximately 8.5 times sales (roughly 15% cheaper equating for net cash). This is significantly cheaper than during our first analysis on this name in March of 2022. However, sales growth is projected to slow substantially in the coming fiscal year as companies cut back on marketing expenses as a recession seems likely at some point in 2023. Braze is also still quite a ways away from profitability, I therefore will remain on the sidelines in this name.
Leverage is a two-edged sword. The edge that can cut you, cuts deeper. "? Naved Abdali
For further details see:
Braze: Cheaper, But Still No Cigar