Braze, Inc.

Moat: 3/5

Understandability: 2/5

Balance Sheet Health: 4/5

Braze, Inc., is a customer engagement platform that enables brands to create engaging experiences. They provide technology that allows companies to use data to better connect with their users.

Investor Relations Previous Earnings Calls

The moat, understandability, and balance sheet health scores reflect a conservative evaluation to ensure a margin of safety in any assessment.

Braze’s primary offering revolves around facilitating meaningful, personalized interactions between businesses and their customers, focusing on enhancing user engagement across various channels and devices. The core value of Braze’s platform lies in providing an infrastructure that allows companies to optimize their engagement campaigns based on data-driven insights and user behavior.

Business Overview

Revenue Distribution: Braze generates revenue primarily from subscription fees for its platform services. Revenue streams are categorized based on a single holistic platform, and in different regions.

The company’s revenue is highly recurring, with a growing portion attributed to subscriptions from larger enterprise customers seeking more consistent and predictable earnings.

Subscription Services: This segment includes revenue from recurring fees for access to Braze’s platform, the tools and features provided to customers.
Professional Services and Other: This segment includes revenue from services, such as implementation support and training. These revenues are more lumpy and less predictable.

Industry Trends: The customer engagement industry is dynamic and rapidly evolving. Key trends include:

Personalization: Customers demand personalized experiences.
Omnichannel Engagement: Brands are expected to provide seamless engagement across various channels.
Data-Driven Strategies: Leveraging data to make informed marketing decisions is more important than ever.
AI/ML: The increasing role of artificial intelligence and machine learning to automate and improve customer engagement processes.
Data Privacy: Privacy and compliance are crucial considerations.
Emphasis on Data: Companies are becoming increasingly dependent on data to build strategies and connect with consumers.

Braze, through its technology, attempts to position itself at the heart of these shifts, helping brands navigate the complexity of multi-channel engagement while also leveraging the power of personalization.

Competitive Landscape:

The customer engagement platform market is highly competitive and fragmented.
Competitors range from established marketing clouds to specialized point solutions.
Key competitors include larger players like Adobe and Salesforce and also smaller, more specialized software offerings.
The market is fragmented with companies specializing in specific industries, or with specific features.
Competition often centers on features, integration, data security, price and support.

Braze’s ability to compete effectively hinges on its ability to provide a platform that’s easy to use, integrates seamlessly across various channels and data sources, and offers unique insights.

What Makes Braze Different:

Customer-Centric Approach: Braze emphasizes personalized, contextualized interactions based on real-time data.
Scalable Infrastructure: The platform can handle vast amounts of data and a wide variety of interactions.
Unified Platform: Braze’s platform merges all customer communication channels, data sources, and analytics into one single pane of glass.
AI/ML Capabilities: Their use of AI and Machine Learning features to personalize interactions and optimize campaigns.
Focus on Mobile: Braze’s platform provides powerful mobile tools, enabling businesses to engage with users where they spend the most time.

From the latest earning calls, Braze is heavily investing in AI and is moving more into the data and analytics side of marketing. They see their competitive advantage in being a more personalized platform. In addition, they are working on AI to increase efficiency.

Financials

Revenue: Braze has consistently demonstrated significant revenue growth over the past few years, fueled by expansion of its customer base and an increase in average revenue per customer. The company’s revenue model is based on recurring subscriptions, so revenue is predictable and consistent. They recently recorded 185.7 million in revenue, 28% YoY growth.

Note that subscription-based revenue is not necessarily immediately recognizable on the income statement, some of it will be deferred in the short term.

Gross Profit and Margins: Braze reports decent gross margins, thanks to its high subscription based revenues, which are generally higher than those for service based companies. The high gross margins allow them to invest more back into the business. Gross margins came at 72.1% for the last quarter.

They are heavily focused on increasing gross profits and optimizing cost structure.

Operating Expenses: Operating expenses are a significant portion of its revenue, and mostly composed of sales and marketing expenditures. Increased spending here is needed to attract new customers. The company is also investing more in research and development to enhance existing products and develop new features.

Increasing their R&D spending is seen as a very large opportunity. However, they noted in the recent earnings call that if this expansion does not lead to new customers, then that would hinder their growth. The emphasis is also on efficiency in terms of spending to ensure that new spending is generating enough return.

Profitability: While revenue growth has been impressive, Braze is still losing money. The company is focusing on growing at a good pace without losing out on opportunities. As they grow they will try to optimize costs, increase margins and reach profitability over a longer-term.

They plan to continue to invest in the business and not expect a positive net income in the short term.

Cash Flow: Braze has strong recurring revenue streams, which should result in strong cash flows if managed correctly. They still need to reduce spending and achieve higher margins to obtain higher levels of cash flow. Currently, while cash flows are still negative, management intends to reduce the amount of loss over the next several years.

They have enough resources for the current time, due to their last stock offering, and they are not worried about the current cash position.

Capital Structure: Braze’s balance sheet has a healthy cash balance, low levels of debt, and sufficient assets. Although they might still be unprofitable, that is not a large concern in their long-term prospects. They recently announced 7.3 million in shares outstanding, so dilution could be a concern if they keep issuing shares at these rates.

Understandability Rating: 2 / 5

The business model of Braze is not difficult to grasp at a high level (providing data-driven customer engagement solutions). However, a thorough understanding requires a deep analysis of the various facets of the technology that Braze provides, and their different features and options. A deep understanding of the complex financial statements is also needed to properly assess long-term growth and profitability.

Balance Sheet Health: 4 / 5

Braze’s balance sheet is considered relatively healthy, featuring:

Strong cash reserves.
Low levels of debt.
Significant investments in the business.

The main concern is the potential dilution due to their stock offerings.

Risks and Resilience

Risks to the Moat and Business:

Competition: Intense competition and the potential for new entrants or existing players with better or cheaper products can weaken Braze’s market position and pricing power.
Technological Innovation: Technological developments and new trends may erode the effectiveness of current solutions. If other competitors are first to innovate, then Braze could lose out in this sector.
Data Privacy and Regulations: Increasing regulations on data privacy and data usage could limit the effectiveness of data-driven approaches. They are now working on being more transparent about the data, usage, and protection policies.
Economic Downturns: Economic crises in the broader market, or in the industry, could affect the market growth of Braze’s services.
Acquisition Failures: Acquiring new companies and failing to integrate those with their previous companies could lead to losses.
Inability to Scale AI Initiatives: The company is heavily investing into AI, but if the features do not work as intended or do not drive enough value to attract new clients, then they would have lower growth.

Business Resilience:

Recurring Subscription Model: Recurring revenues make its performance more predictable, especially for future periods.
Customer Diversification: By having a huge client base from all different industries, Braze is protected from being affected greatly by the failure of a single sector.
Product Innovation: Continued emphasis on R&D helps maintain and enhance their current platform features.
Focus on Partnerships: By making more collaborations and partner integrations, Braze is ensuring it integrates into workflows more smoothly, which increases its switching costs.

Recent Controversy: In the latest earning call, Braze mentioned a lot of “headwinds” that it has been facing. There is increased competition in the marketplace, and slower-than-usual expansion. Because of the uncertainty in the economy, many companies have been reluctant to try new software offerings. In addition, management cited some missteps in the hiring process, which has also negatively affected its results. However, management insists that their business and platform is strong and the company is still on track for long-term goals. They continue to invest and expand with a hope for future growth.

Despite facing headwinds, the company retains a decent moat, good business model, and a healthy balance sheet. They have also noted that customer growth has been higher than expected, but revenue per customer has decreased. As long as they can streamline their sales and continue to innovate their offerings, the long-term prospects for Braze appear to be quite good.