Is Braze Inc Ready To Rocket Higher?

Key Points

• Braze, Inc. blazes higher on strong results and guidance. 
• The company is a potential acquisition target for companies like Salesforce.com. 
• The stock is breaking out of a range and may move higher in 2023. 

The strength in Braze, Inc’s NASDAQ: BRZE Q4 results was easy to predict because of the shift to digital and the strength in results from Salesforce.com NYSE: CRM. Braze and Salesforce.com are not identical but complementary businesses serving the needs of businesses and industries across verticals. What Braze, Inc does is CEP compared to Salesforce.com’s CRM, but it amounts to the same thing: using digital tools to track and engage customers to drive sales.

Since market leader Salesforce.com may view acquisitions as a meaningful way to expand its business and drive shareholder value, Braze, Inc is a potentially attractive target: its annual revenues are growing by double-digits, and cross and up-selling opportunities would abound. 

Braze, Inc Rises On Strong Quarter, Analyst Praise 

Braze, Inc had a strong quarter driven by the roll-out of new services, new client acquisition, upselling and renewals. The company reported $98.68 million in revenue, which is up 40% compared to last year and beat the Marketbeat.com consensus by 350 basis points. Data within the report shows a high level of retention and deepening penetration of existing clients on top of the 28.7% new customer growth. 

Customers contributing more than $500K in TTM revenue are up 45%, consistent with trends reported by other tech services companies. Tech adoption is still strong and being led by large corporations with the resources to invest in next-generation technology. Regarding net retention rate and RPO, the company’s NTT is running above 120%, showing strong retention and upselling to existing clients and increasing unbilled but contracted business. 

The margin news is mixed but ultimately favorable to share prices. The GAAP gross margin improved by 130 bps, while the adjusted margin was flattish compared to last year. This left the operating margin in negative territory, but the loss narrowed, net cash from ops was positive, and cash burn fell to only $1.9 million compared to last year’s $26 million. Considering the $482 million in cash and securities the company has on the balance sheet and the prospect of profitability, it looks like it has ample cash to sustain operations indefinitely. 

Guidance is also favorable, but 2 issues may cap gains or at least weigh on share prices in the near term. The 1st is that guidance is in line with the Marketbeat.com consensus estimate, which is no catalyst for a rally; the 2nd is that growth is slowing to only 40% compared to last year’s 49% and may also weigh on the market. 

The Analysts' Support For Braze Improves 

The analysts had Braze pegged at Moderate Buy before the release, which has not changed. What has changed is the price target which has begun to move higher after a year of downtrending. The consensus is also 33% above the current action, so the stock has upside potential. Assuming this trend continues, Braze shares could break out of their trading range and begin trending high again. 

Regarding the chart, Braze shares are up 16% and breaking out of their trading range. This move has the stock on track to hit the Marketbeat.com consensus target of $42 soon. The risk is resistance at the $40 level. This price point could keep the stock from increasing because of strong resistance. If so, this stock will remain range bound until later in the year.