The rally in Braze, Inc. gains momentum: 30% upside potential

Key Points

• Braze had a beat-and-raise quarter that has shares up 5% and is on track for another double-digit gain... at least. 
• Analysts cheered the results and raise their targets to align with another significant rally. 
• Institutions have been selling into the rally and may provide volatility for traders to take advantage of. 

Braze, Inc. NASDAQ: BRZE emerged as a solid play on business services, AI and cloud stocks earlier this year, and it is gaining momentum. The Q3 results were strong enough to spark a series of price target upgrades that have the stock up 5% in premarket trading and on track for another 30% gain in the coming months. Not only is the fundamental story sound, but the company has solid market support and has completed a technical reversal that could see this market double by the end of next year. 

Braze has a blowout quarter, guides higher 

Braze had a solid quarter, with revenue growing 33% YOY to $124 million. This is 590 basis points better than the Marketbeat.com consensus driven by strength in subscriptions and services. Subscriptions, the core of the business, are up 33%, with services up a more robust 36%. Revenue gains are due to new customers, upsells and renewals that point to sustained strength in 2024. New customers are up 17% YOY, and customers contributing more than $500K in ARR are up nearly 28%. Net retention, a penetration gauge, is up 118%, aiding a significant margin increase. 

Braze continues to post GAAP and adjusted losses, but revenue leverage and cost controls significantly improved operational quality. The gross margin improved by 300 basis points, adjusted by 170 and was compounded by an improvement in operating costs. The operating loss was halved, leaving adjusted earnings at -$0.05 or $0.08 ahead of the consensus. The better news is that operational quality will persist in Q4, and the guidance appears cautious. 

Braze execs issued favorable guidance that has analysts raising their estimates. Still, the $124 to $125 million in quarterly revenue assumes an end to sequential growth and a significant slowdown from the 30% pace set this year. Because the company displays strength in new customers and retention and has expanded its relationship with AWS to include listing on the AWS Marketplace, Q4 results will likely exceed guidance. Regarding profitability, the company reaffirmed its outlook, expecting quarterly profits to begin in fiscal 2025 (calendar 2024). 

Analysts cheer Braze results, lift targets to catalyze the market 

The analysts were on board with Braze before the release and are raising their targets now. The five tracked by Marketbeat in the first 18 hours after the release include five price target increases with an average target of $73. That’s $14 or 24% above the broad market consensus of $59, trending higher and aligning with the post-release pop in the price action. The consensus of 17 analysts is a Moderate Buy; their activity has Braze listed on Marketbeat’s Most Upgraded and Top Rated Stocks list. 

Institutional activity may cause some volatility in the Braze market. The institutions have been actively buying and selling the stock over the past 2 quarters, with the total activity ramping higher and selling greater than buying. The ramp and mix in activity suggest market rotation and profit-taking that may persist as shares move higher. The caveat is that institutional holders may cease selling with prices advancing, allowing the rally to continue. 

The technical outlook: Braze is blazing a trail to higher share prices

The technical action in Braze is a textbook example of sell-off, bottoming, reversal and continuation. The sell-off resulted in a Head & Shoulders Bottom confirmed as a full reversal a few weeks ago. Now, the market is advancing again after showing a strong Three White Soldiers Continuation Pattern to break above critical resistance. In this scenario, this market could rise by the magnitude of the pattern, which is $25 and 100% of the starting point. In this scenario, the market for Braze stock could easily advance to and surpass the current analysts’ high price target of $80.