On Monday, Scotiabank adjusted its outlook on Braze Inc (NASDAQ:BRZE), a customer engagement platform, by reducing the price target to $48 from the previous $58 while maintaining a Sector Perform rating. The adjustment comes after Braze's shares fell more than 25% since the fourth-quarter earnings report, a decline attributed to broader sector weakness.
The bank's analyst believes that Braze's valuation is still reasonable, trading at approximately 8 times the expected Gross Profit for the calendar year 2025, which is around 1.5 times higher compared to its peers. Despite the challenging demand environment and the sector's pullback, the analyst suggests that Braze does not need to raise its financial year 2025 guidance for the stock to perform well following the earnings report.
Braze's billing and revenue growth consensus estimates stand at 29% and 25%, respectively, which are considered conservative by Scotiabank. There is potential for a slight increase over the company's 22% growth projection for FY25. Key factors that could influence the stock include first-quarter bookings strength, net retention rates (NRR), which have remained robust, and the addition of new customers.
The report also notes that Braze's current guidance accounts for incremental pressures from new customer growth, making NRR and customer growth more significant factors than in previous results. Furthermore, the completion of a full year since the North Star acquisition is expected to provide tailwinds to the first-quarter results of 2025.
Scotiabank anticipates that higher-than-expected WhatsApp volumes may create gross margin headwinds in the first quarter. However, the analyst expects there to be a slight advantage to the consensus 10% operating margins. The FY25 operating income estimates, which suggest a 4% operating margin, are deemed conservative, and any upside is considered crucial given the gross margin headwinds.
Lastly, the report highlights Braze's impressive large customer expansion and the addition of customers with an annual recurring revenue (ARR) of $500,000. The bank is looking for indications that the headwinds in the commercial sector are diminishing. The management's commentary on seeing strong expansion with COVID renewal cohorts underscores Braze's growth durability and the return on investment it provides to users.
InvestingPro Insights
With Braze Inc (NASDAQ:BRZE) experiencing a notable decline in share price, insights from InvestingPro become particularly valuable for investors seeking a deeper understanding of the company's financial health and market position. An InvestingPro Tip highlights that Braze holds more cash than debt on its balance sheet, which can be a sign of financial stability in uncertain times. Additionally, while analysts have tempered their earnings expectations for the upcoming period, Braze's liquid assets exceed short-term obligations, providing some reassurance about the company's ability to meet its immediate financial commitments.
From a data perspective, Braze's market capitalization stands at $3.8 billion, and despite recent challenges, the company has seen a revenue growth of 32.74% over the last twelve months as of Q4 2024. However, the company's P/E ratio is currently negative at -32.56, reflecting concerns about profitability in the near term, as echoed by an InvestingPro Tip that analysts do not anticipate the company will be profitable this year. Moreover, the price has seen significant drops over the last three and six months, with total returns of -34.1% and -33.13% respectively.
For those considering a deeper dive into Braze's financial metrics and future prospects, InvestingPro offers additional tips. Subscribers can access these tips and utilize the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription. With a total of 11 additional InvestingPro Tips available, investors can gain a comprehensive understanding of Braze's market potential and investment risks.
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