TSP Weekly Tech Stock Update—April 20, 2024
This Week: MSFT/NOW/GOOGL/DDOG earnings previews, Evercore ISI bullish on Broadcom, KeyBanc upgrades Zscaler, Braze shares retreat, Adobe's latest AI initiatives, Smartsheet new share buyback & more.
Hello from Rob…
— After reaching a new 52-week high of $61.53 in the middle of February, shares of Braze (BRZE, $38.94–TSP Watch List), a provider of a customer engagement platform for B2C use cases, in late March fell 12.4% in one session following the release of FQ4 (Jan.) results. While Braze's latest numbers were good, the company’s initial FY’25 (Jan.) revenue guidance did not beat expectations. The stock, now down 26.7% YTD, is back at its August 2023 levels.
In FQ4, total revenue rose 33% to $131 million, 5% above the consensus estimate. Gross margin gained 90 basis points year-over-year to 67.9%. Total RPO of $639.2 million advanced 40%, accelerating from FQ3 growth of 37% and FQ2 growth of 28%. This acceleration in RPO growth was aided by the fact that more customers are now making longer-term commitments to the Braze platform. Current RPO of $409.1 million was up 31%, matching the FQ3 growth rate.
While Braze looks well-positioned for the year ahead, the company offered what I view as a conservative initial FY’25 top-line guide of $570 million to $575 million (midpoint growth of 21.5%). A year ago, Braze’s initial FY’24 revenue outlook called for growth of 22% to 23%, while the actual growth rate came in at 33%. Braze should be able to top the FY’25 guide, especially because it now has more enterprise customers, giving it greater upsell opportunities.
In FQ4, Braze had a record upsell quarter that was driven mainly by enterprise accounts that are leveraging rich, first-party data and integrating AI into their operations. Large customers are adopting more channels, deploying more use cases, increasing their ad volumes and adding new business units & geographies. Braze in the January quarter even scored its first 8-figure upsell with a large media & entertainment conglomerate that has been a customer for eight years.
It’s notable that Braze offered a lower margin profile for FY'25 only because it’s adding sales capacity for the first time in more than a year (to meet incremental demand), which is positive for future revenue growth.
*Inside This Issue: A Cybersecurity Merger That Would Make Sense
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