On Thursday, Scotiabank adjusted its outlook on Braze Inc (NASDAQ:BRZE), a customer engagement platform, by lowering the price target to $58 from the previous $65, while keeping a Sector Perform rating on the stock.
The firm's analysis acknowledges Braze's strong performance in key business areas, including bookings and revenue growth, which are expected to underpin investor confidence in the company's conservative forecast for fiscal year 2025.
The forecast anticipates a 21% growth, which is slightly below the consensus estimate of 23%. The analyst noted that expansion and upsell efforts continue to be the main drivers of bookings, and management's remarks on robust expansions with the COVID renewal cohort reinforce belief in Braze's enduring market strengths and relative resilience compared to the broader software sector.
Despite the positive outlook on growth, Scotiabank pointed out some concerns regarding Braze's profitability. The guidance for operating margins is at negative 4%, which falls short of the consensus estimate of negative 2%. This is expected to contribute to gross margin pressures in the first quarter, although a recovery is anticipated throughout the remainder of the year.
The analyst suggests that while Braze's margins are a point of attention due to its structurally lower-margin business model compared to its SaaS peers, the company's consistent growth justifies a degree of leniency on margin expectations for the time being.
Management also indicated that they do not predict a significant shift in the mix of new customer acquisition versus expansion in fiscal year 2025, but they advise monitoring customer growth closely.
The firm's stance appears to be that while the margin guidance has been lowered, Braze's proven ability to sustain growth over the last year or so warrants a temporary pass on margins, as the company begins to add sales capacity for the first time in twelve months.
InvestingPro Insights
In light of Scotiabank's recent update on Braze Inc, current real-time data from InvestingPro provides additional insights that may interest investors. The company currently holds a market capitalization of $4.93 billion USD, with a significant revenue growth of 34.33% over the last twelve months as of Q3 2024. This aligns with the robust growth highlighted by Scotiabank, though the company's high Price/Book multiple of 11.52 suggests a premium valuation. Additionally, the gross profit margin stands at a healthy 68.61%, indicating strong profitability in terms of revenue.
Among the InvestingPro Tips, two points stand out. Firstly, Braze is noted for holding more cash than debt on its balance sheet, which may provide a buffer against market volatility and financial stress. Secondly, analysts predict the company will not be profitable this year, which could be a concern for investors focused on short-term earnings. However, the company's high return over the last year, with a one-year price total return of 63.74%, could be indicative of strong market confidence in its long-term strategy. It's worth noting that there are 7 additional InvestingPro Tips available, which can be accessed by investors looking to deepen their analysis.
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