Is This A Buyable Bottom For Braze, Inc Shares?

Braze Beats And Raises Guidance But Analysts Lower Their Targets 

Braze, Inc's (NASDAQ: BRZE) Q1 results are another indication a bottom may be forming for cloud stocks. The caveat is that while a bottom may be forming, we are still not counting on a major rebound for the sector and are hesitant to commit new capital. Braze, Inc beat and raised but the Q2 and FY guidance is only in-line with the Marketbeat.com consensus estimates which is no catalyst for a rally. The more likely scenario is a relief rally is in play, one aided by a relatively high 6.5% short interest, and we think it will lose steam fairly quickly. Inflation, interest rates, and higher gas prices are still working their way through the economy and that will cap gains for all stocks over the summer. 

Braze Has Robust 1st Quarter

Braze had a great Q1 with revenue of $77.5 million up 61.8% versus last year. The revenue was driven by strength in all reporting segments/categories led by a 62% increase in subscriptions. Subscriptions revenue came in at 94% of the gross and was aided by a 46% increase in Professional Services. Net retention, a measure of growth from existing client bases, came in above 125% for the trailing twelve months and indicates healthy growth without the addition of new clients.

Moving down to the margin, the news is a little mixed with the GAAP margin contracting and the adjusted margin expanding. The takeaway is that both the GAAP and adjusted losses are due to stock-based compensation, and non-cash impairment and that margins were better than expected. The company reports $15.7 million in FCF versus negative cash flow last year and an adjusted EPS of -$0.19 which is $0.02 better than expected. 

The Q1 strength led the company to raise its guidance but it was a “so what?” kind of move. Company execs upped the targets for both the Q2 and FY periods but only to a range that is in line with the consensus. In our view, this may provide some relief for worried markets but is not a reason to rally. At best, price action will get a bump on short-covering but it won’t turn into a sustained rally without some other catalyst to drive it. 

The Analysts Sap Strength From Braze, Inc’s Rebound 

Price action in Braze, Inc popped more than 10% in premarket action but the analysts aren’t helping it any. At least 7 of the 13 analysts with current coverage have come out with commentary and all include lowered price targets. The range among them is $40 to $60 with a consensus of $45 compared to the broader Marketbeat.com consensus of $57.31. The Marketbeat.com consensus is about 90% above the current price action but down sharply in the 90 and 30-day comparisons. The $45 target is about 50% above the current price action but we think this figure will soon fall if only because Braze has yet to show profits and there is no indication of when that might be. 

The Technical Outlook: Braze, Inc Pops But It Didn’t Stick 

Shares of Braze, Inc popped more than 10% in the wake of the Q1 report and guidance raise but the move did not stick. Price action was halted at the 30-day moving average and has since retreated to near break-even with the previous session. This action suggests the short-sellers and bears are still in control of this market and could push it down to a new low. If support at the $27.25 level doesn’t hold we see this stock falling down below $20. So, no, we don’t think this is a buyable bottom.