Despite exceeding Q2 EPS and revenue expectations and achieving its first profitable quarter on a non-GAAP net income basis, Braze (BRZE, Financial) is facing a significant decline. Similar to competitor Sprinklr (CXM, Financial), which also released its Q2 earnings report recently, BRZE issued disappointing Q3 and FY25 guidance. This has heightened concerns that macro-related headwinds affecting CXM and other peers like Salesforce (CRM, Financial) and HubSpot (HUBS, Financial) are also impacting BRZE.
- BRZE's decline is primarily due to slowing growth and the company's strategy to continue investing heavily in its brand and business. In Q2, revenue growth slowed to 26.4%, down from the low-30% range seen over the past five quarters. The midpoint of its Q3 revenue guidance of $147.5-$148.5 million suggests growth will dip just below 20%.
- Despite the slowdown, BRZE has no plans to scale back its operations. CEO Bill Magnuson stated that challenging environments present opportunities to create competitive moats and long-term differentiation. The company will continue to invest in its global teams and products while improving system performance.
- BRZE's ambitious spending plans amid growth concerns are likely unsettling investors. Although the company raised its FY25 EPS guidance to $0.06-$0.07 from $(0.10)-$(0.06), most of this increase reflects the EPS upside posted in Q2.
- However, BRZE's business is not in freefall. The company has seen success on the enterprise side, with $500,000+ ARR customers increasing by 28% year-over-year to 222. This growth is driven by strong upsell activity as customers adopt more channels, deploy more use cases, and expand into new business segments and geographies.
- From a broader perspective, BRZE is well-positioned to benefit from an ongoing vendor replacement cycle and the consolidation of customer management tools among enterprises. The company believes that new AI advancements will lead corporations to place even greater emphasis on customer engagement tools.
The main takeaway is that while BRZE delivered solid Q2 results, the company's underwhelming guidance and slowing growth have led to a sharp selloff as investors adopt a "sell first, ask questions later" approach.
