There’s A Reversal In Play For Braze, Inc

Key Points

• Braze moves higher after a solid quarter and improved guidance. 
• Analysts are raising their price targets and may send the market into a complete reversal. 
• Institutions are buying the stock at ratio of 3:1 compared to sales. 

Braze, Inc NASDAQ: BRZE  Inc is not a well-known name, and many who know it may not be happy to hear about it. The stock is down nearly 60% from its IPO euphoria, leaving many investors' accounts in the red. The good news is that the company continues to gain traction as a go-to platform for customer engagement needs. The Q1 results were better than expected and came with solid guidance that points to better-than-expected growth, albeit slowing growth.

The takeaway is that the news was good enough to grab the analysts' attention and get the market back into gear. The market for Braze stock is showing support at key levels and is on the verge of completing a reversal that could lead to a sustained rally into year-end. 

Braze Shows Sustained Strength In Tough Environment 

Braze had a solid quarter without outperforming the Marketbeat.com consensus estimates and beat the consensus. The $101.78 million in net revenue is up 31.3% compared to last year, beating the consensus by 400 basis points. The gains were driven by an increase in core subscription revenue which grew by 33% and was offset by a small decline in Professional Services revenue.

Professional Services is less than 5% of the net, so not a concern for the market. Subscription revenue strength was supported by new customers who are up 24%, renewals and upsells. The net retention rate, an indication of new business generated from old customers, is up 122% while remaining performance obligations are up 42%. 

The company’s margins improved compared to last year, but 1-off and non-cash impairments left the GAAP earnings down YOY. The good news is that adjusted gross margin growth came in at 100 basis points, leaving the adjusted loss at $013 or a nickel above the consensus.

These results led to solid guidance that includes Q2 and FY revenue and earnings above the consensus estimates. The company expects FY revenue from $442.5 to $446.5 million or up 25% YOY. The only bad news is that the guidance expects continued slowing from the previous 40% pace to a pace in the high teens. 

The analysts like what they see in the Braze report and are raising their targets. Eight of the 16 following with reports out in 2023 raised their price target for the stock. The range of new targets ranges from $35 to $50 compared to the $42 broad consensus, which implies about 2% of upside for the stock. The salient point is that the consensus target is trending higher again after a year of down trending and provides a tailwind for the market. 

Institutions Are Buying Braze 

The inside activity is mixed but telling once you dig into the details. The actual insiders, execs and the like sell shares, but their activity is negligible and consistent with share-based compensation. Offsetting that activity is some heavy buying by the institutions, including Iconique, the largest shareholder who launched the company to public fame. Iconique owns about 24% of the company, and the institutions own another 26%, and they are also buying. The broad institutional community has bought in a ratio of 3:1 and has only been net sellers for a single quarter since the IPO. 

Price action moved sharply higher following the Q1 release. The market is showing support at the 150-day moving average and is on the verge of a complete reversal. The next hurdle is resistance in the $45 to $50 range that may cap gains.