Summary
- Braze, Inc.'s expertise in mobile marketing, unique real-time features, and dominant position in an untapped market opportunity make it well-positioned for growth in the future.
- The company’s product pipeline remains robust, with management positive on upselling opportunities.
- Braze operates in a market with a total addressable market large enough to support sustained revenue growth over a long period of time.
- My end-of-2024 price target for Braze, Inc. is $56, based on an estimated enterprise value of 8x the company’s FY24 revenue estimate.
Thesis
Braze, Inc. ( BRZE ) is a top customer engagement platform that helps brands communicate with their customers through multiple channels. Its platform allows brands to send personalized and contextual messages in real time, which can help with customer acquisition, retention, and engagement. Braze's success in a fast-growing industry, combined with its efficient business model and strong revenue growth, makes it a unique and valuable player in the software market. My end-of-2024 price target for BRZE is $56, based on an estimated enterprise value of 8x the company’s FY24 revenue estimate.
Management Remains Positive on Upsell Opportunities
According to management, there is still strong demand for Braze's innovative marketing solution, and the company's pipeline remains robust . However, the sales cycle is longer, and some buyers are hesitant. Nevertheless, the company achieved significant growth in upselling existing customers during the previous quarter. I am impressed by Braze's product strategy, which aims to create a competitive advantage and distinguish the company from traditional vendors.
Recently, Braze announced new features such as Braze Data, WhatsApp integration, and Feature Flags at its customer conference, Forge, which have been well-received by customers and can be applied in various use cases. The Audiencing feature, although not a premium offering, is attractive to customers and aligns with Braze's core mission. Braze also announced a new Tik-Tok data sync during the Forge London event, which enables customers to integrate real-time data with Tik-Tok for targeted advertising and optimizing ad spend. This integration has been quickly launched and is a highly requested feature among customers for Audiencing usage.
Expansion Opportunities Across Multiple Vectors (Company Presentation)
Early leader in omni-channel customer engagement orchestration
Companies no longer rely on first-generation marketing automation solutions or customer data platforms (CDPs) to understand their customers across multiple marketing channels. Instead, they are looking for modern customer engagement platforms that can engage with customers throughout their entire journey across various channels. Braze has been at the forefront of this modern marketing software category, giving it a competitive advantage over early but larger SaaS (Software as a Service) marketing vendors that have heavy single-channel platforms, which may require a complete platform overhaul to compete with modern vendors like Braze. Consequently, I anticipate that Braze will continue to gain market share from legacy vendors that may be slow to pivot their platforms to meet the changing demands of the market.
Significant Growth Opportunity Ahead
Braze operates in a large total addressable market ("TAM") valued at $16 billion , which Gartner expects to grow at a rate of nearly 10% annually for several years. Despite the top five vendors accounting for 47% of the current market share, the marketing software industry remains highly fragmented, with hundreds of players. With only $372 million in trailing twelve months ((TTM)) revenue, I believe that Braze's market is large enough to support sustained revenue growth over a long period, with execution being the only significant obstacle to the company achieving $1 billion in revenue.
Valuation
I have set a price target of $56 for Braze, Inc. shares based on an EV/revenue valuation approach. This method enables a consistent comparison across different Software as a Service companies. Currently, BRZE shares are trading at an EV/revenue multiple of 5.7x to FY23 revenue, which is a premium compared to its peers. While historical forward-year revenue multiples for SaaS companies have ranged from 4x to 15x, some hyper-growth companies have achieved multiples as high as 50x due to their durable growth. Given BRZE's rapid revenue growth rate, I believe that its current valuation places it in the top quartile of public SaaS vendors. My end-of-2024 price target for BRZE is $56, based on an estimated enterprise value of 8x the company’s FY24 revenue estimate.
Risks
Braze, Inc. operates in a fast-growing and constantly changing market, where there is competition among various players in the value chain. As the relationship between brands and consumers is crucial, there may be new entrants in the market, including current partners, like Twilio's Engage platform. Moreover, Braze competes with both established marketing cloud companies, such as Adobe Inc. (ADBE) and Salesforce, Inc. (CRM), and newer solutions, such as Airship, Iterable, Leanplum, MailChimp, and MoEngage. Increased competition could lead to pricing pressures and negatively affect Braze's financial performance.
Final Thoughts
In my view, Braze, Inc.'s expertise in mobile marketing, unique real-time features, and dominant position in an untapped market opportunity make it well-positioned for significant growth in the future. Despite competition from legacy vendors and a highly fragmented market, Braze's product strategy and early leadership position in omni-channel customer engagement orchestration differentiate it from traditional vendors.
Braze, Inc. management remains positive on upsell opportunities, and recent product announcements have been well-received by customers. I keep an end of 2024 price target of $56 on Braze, Inc. stock based on an estimated enterprise value of 8x the company’s FY24 revenue estimate.
For further details see:
Braze: Plenty Of Room For Growth