Investment overview

I wrote about Braze, Inc. (NASDAQ:BRZE) previously (Mid-June 2024) with a buy rating as I see a long growth runway ahead for the business, and it was apparent that the poor macro backdrop was not impacting the business growth strength at all. I remain bullish on BRZE, as I don’t think the sharp sell-down in share price is justified. I think the slowdown in certain operating metrics is not due to structural weakness, and we should see a recovery eventually.

2Q25 earnings (announced on 5^th Sept)

BRZE 2Q25 total revenue saw $145.5 million, $140 million from subscription and $5.5 million from services revenue. Total revenue grew 26.4% y/y and subscription revenue grew 28% y/y. Despite decelerating from 1Q25, this was still a beat vs. consensus estimate of $141 million in total revenue. Adj gross margin expanded by 90 bps from 70% in 2Q24 to 70.9% in 2Q25, driven by continued cost optimization and personnel efficiencies. 2Q25 also marked the first quarter that BRZE turned adj EBIT margin profitable at 3%, which drove adj EPS to $0.12.

Growth strength remains sound

Unlike what the share price action depicts, I strongly believe this was a very good set of results that bolster my view that BRZE can continue to grow healthily and profitably for the coming years. Before I get to it, I think I should address the two key aspects that drove the share price decline.

Firstly, forward-looking metrics in the quarter did not paint a healthy outlook on the surface. Take, for instance, calculated billings grew by only 15.9% y/y. Without going deep into the details, this seems like BRZE growth strength has deteriorated sharply vs. 1Q25’s billings growth of 37% and 2Q24’s growth of 34%. This was mainly due to a dip in the proportion of net-new business, which had an annual-upfront billing duration, and that impacted invoices being billed in 2Q25. Also, 2Q24 had the benefit of an acquisition, so that made the comp base tougher in 2Q25 vs. 1Q25. I also note that while billings growth indicates the direction of revenue growth, it does not indicate well the magnitude of change. In order to smooth out these impacts, it is better to look at billings growth on a two-year stack basis, of which we can see that BRZE billings growth remains very healthy at 50.1%. The other forward-looking metrics that looked weak were RPO and cRPO growth, which both decelerated in 2Q25, where RPO grew 31.7% vs. 37.7% in 1Q25 and cRPO grew 24.1% vs. 29% in 1Q25. Again, both of these metrics were impacted by the North Star acquisition. On a two-year stack basis, RPO growth is in line with 1Q25 59.3% this quarter vs. 59.3% in 1Q25.

Secondly, the net-dollar expansion rate [NDER] for all customers declined by 300 bps vs. 1Q25 to 114%, and I believe this has spooked investors into thinking that there was an increase in churn. I think it is important to recognize that a portion of this decline is due to the way NDER is being calculated—on a trailing 12-month basis—so this metric also reflects the past 3 quarters’ weakness. As for the other part of the churn equation (organic churn), I think it is mostly led by the weak macro situation, which has impacted peers as well (so this is not isolated to BRZE). Which means, when the macroeconomy recovers in due time, we should see this metric improve.

We acknowledge the near-term challenges we are facing, including lower net bookings we’ve been experiencing over the past few quarters. This is due to execution challenges exacerbated by macroeconomic factors that have impacted customer budgets and spending. CXM 2Q25 earnings

Now, let’s turn to our outlook. We are assuming that the macroeconomic environment continues to be challenging throughout the rest of the year. AMPL 2Q24 earnings

Okay, on to the macro environment. We’re seeing the same trends as last year and Q1. Slower decision making, more decision makers involved, and scrutiny on business case, and value before spending. HubSpot 2Q24 earnings

the pressures we talked about in terms of overall SMB kind of macro pressure, as well as expansion, still persist. Freshworks 2Q24 earnings

Turning to the positive aspects of the growth outlook. The reality is that BRZE continues to see very strong demand trends in the enterprise segment, where the number of customers with >$500k in annual recurring revenue [ARR] grew 28% y/y, an acceleration from the 24.5% seen in 2Q24, and the absolute adds are the same as 1Q25 at 10, indicating no slowdown in demand at all. This cohort of customers is now ~61% of total revenue; hence, if this trend continues, overall revenue growth will start to better reflect BRZE’s strength in this segment. In my opinion, this trend will continue, given BRZE competitive advantages when it comes to more sophisticated marketing campaigns.

With more than a decade of experience and focus on customer engagement, we deeply understand the importance of high-performance data activation and flexible governance in order to deliver sophisticated relevance and revenue optimization, especially as the challenge of modern customer engagement has spread across an increasingly ubiquitous set of customer touch points. 2Q25 Braze earnings

Lastly, for the first time, BRZE launched a free trial program allowing new customers or even groups within existing customers to try out the Braze platform for a period of 14 days. I strongly believe this is a smart go-to-market strategy, as it significantly lowers the adoption barrier for customers—those that want to try but do not want to pay. By doing this, it gives potential customers the opportunity to understand how BRZE works and how sophisticated the platform is. This should help BRZE better capture customers.

Valuation

I believe the sharp decline that BRZE saw recently was not justified and does not reflect the healthy growth outlook of the business. As I have discussed above, the few metrics that were concerning at a glance were not structural. There were also no signs of structural impairments to the value proposition that BRZE brings to customers, as evident from the fact that large enterprise customers continue to adopt BRZE products. Hence, I think when BRZE shows investors in the coming quarters that growth can remain healthy (with billings reaccelerating), we should see multiples re-rate back to where it was trading pre-results minimally (6x forward revenue) from the current 5.1x forward revenue.

Risk

If BRZE prints another quarter of billings growth deceleration with revenue growth deceleration, this could spark another way of major selldown as the market starts to believe BRZE growth is slowing down organically. The macro situation remains uncertain, especially with the job report data that came out yesterday, suggesting that the US may dip into a recession at this rate. If the economy does go into a recession, BRZE growth will inevitably get hit.

Conclusion

I give a buy rating for BRZE as underlying growth potential remains intact. While some operating metrics seem to indicate slow growth ahead, I believe they were impacted by macroeconomic conditions and other non-structural reasons. The fact is, BRZE continues to win large enterprise customers, and the strategic initiatives, like the free trial program, have enhanced BRZE growth outlook.