On Friday, Goldman Sachs (NYSE:GS) reiterated its Buy rating on Braze Inc (NASDAQ:BRZE) with a steady price target of $65.00. The firm's assessment follows Braze's second-quarter fiscal year report for July, which revealed revenues surpassing Wall Street expectations by 3% and an operating margin approximately 800 basis points above estimates, as per FactSet data. Despite a year-over-year revenue growth of 26%, there was a 4 percentage point organic slowdown compared to the first quarter.
Braze experienced a 16% year-over-year increase in billings, which fell short of the anticipated 26%. The total Remaining Performance Obligations (RPO) rose by 32% year-over-year, a slight decrease from the 38% growth in the first quarter. The company’s current RPO (cRPO) saw a 24% year-over-year increase, compared to a 29% increase in the previous quarter.
The Net Revenue Retention (NRR) rate dipped by three points to 114%, reflecting a trend among application software companies of contract normalization, particularly those signed during 2020-2021. Specifically, the Small and Medium Business (SMB) segment, with customers generating less than $500K in Annual Recurring Revenue (ARR), grew by only 9% year-over-year.
For the third quarter, Braze's revenue guidance aligns with market expectations, projecting a 19% year-over-year increase. The company anticipates an Earnings Before Interest and Taxes (EBIT) margin of negative 3%, with a significant improvement to the full-year EBIT margin guidance, adjusting from negative 4% to negative 1%.
Goldman Sachs' positive outlook on Braze is reinforced by the firm's confidence in Braze's superior architecture and its potential to capitalize on the growing emphasis on Artificial Intelligence (AI) in enterprises, as well as ongoing changes in privacy regulations that heighten the need for more personalized customer engagement.
In other recent news, Braze Inc. has been making significant strides in its financial performance. The company witnessed a remarkable quarter, achieving its first-ever positive Non-GAAP operating income and surpassing its own guidance. This strong performance reflects robust upselling activities and sustained new business trends, leading to a significant top-line beat.
Braze also posted adjusted earnings per share of $0.09 for the second quarter, exceeding analyst expectations of a $0.03 loss. Revenue saw a 26.4% year-on-year increase, reaching $145.5 million and outperforming the anticipated $141.3 million. Canaccord Genuity and DA Davidson have maintained a Buy rating on Braze shares, showing confidence in Braze's growth trajectory and market positioning.
InvestingPro Insights
Following Goldman Sachs' reaffirmation of a Buy rating on Braze Inc (NASDAQ:BRZE), a closer look at InvestingPro's real-time data and insights may provide additional context for investors. Braze's market capitalization stands at approximately $4.39 billion, with a notably high Price to Book ratio of 10.28, indicating a premium valuation relative to the company's book value. Despite a strong revenue growth of over 33% in the last twelve months as of Q1 2025, analysts are not expecting Braze to be profitable this year, as reflected by a negative P/E ratio of -28.78. This aligns with the company's recent operating margin performance, which although better than expected, still indicates profitability challenges.
On the liquidity front, Braze holds more cash than debt on its balance sheet, and its liquid assets exceed short-term obligations, providing the company with a solid financial footing to manage its operations and invest in growth opportunities. However, it's worth noting that Braze does not pay a dividend, which may influence the investment strategy of income-focused shareholders. Investors may also take interest in Braze's recent stock performance, which has seen a strong return over the last month and three months, despite a more mixed longer-term picture.
For those seeking further insights, there are additional InvestingPro Tips available for Braze Inc, which can be found by visiting the dedicated page for Braze on InvestingPro. These tips delve deeper into the company's financial health, valuation, and market performance, offering a comprehensive analysis for informed decision-making.
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