Braze beats Q2 revenue projections

Customer engagement platform operator Brazos (BRZE -19.40%) reported fiscal second quarter 2025 revenue on Thursday that beat internal guidance on both the top and bottom lines. Braze’s revenue for the quarter (which ended July 31) was $145.5 million, up 26.4% year over year. The company reported non-GAAP operating income of $4.2 million, significantly better than the expected loss of $6.5 million to $7.5 million. It was its first quarter of adjusted operating income returns.

This quarter’s results were strong, reflecting positive revenue and profitability trends despite areas of concern such as retention rates and macroeconomic pressures.

Source: Braze. Note: Expectations based on management guidance provided as of June 6, 2024. GAAP = Generally Accepted Accounting Principles. YOY = Year Over Year.

About Braze

Braze is a customer engagement platform that enables brands to create personal, real-time, cross-channel experiences for their users. This New York-based company offers messaging, analytics and content management tools to improve customer engagement. Recently, Braze has focused on real-time data processing, seamless integration with its partner ecosystem, and artificial intelligence (AI)/machine learning to enrich its services.

The company aims to drive growth through a development and expansion strategy, where it initially captures customers with affordable products and subsequently increases engagement within those organizations. Recent initiatives show Braze’s commitment to improving its platform. Introduced the Braze data platform that integrates AI and machine learning to drive customer engagement. This platform aims to provide more personalized and efficient customer interactions.

Highlights from the second quarter

Subscription revenue contributed significantly to overall revenue growth in the quarter, reaching $140 million (compared to $109.7 million in Q2 fiscal 2024), reflecting continued traction in its core business. Non-GAAP gross margin improved slightly to 70.9%. The total number of customers increased to 2,163 from 1,958, and the number of high-value customers with annual recurring revenue (ARR) of USD 500,000 or more increased to 222 (compared to 173 in the previous year), validating its field strategy and expansion.

Despite its success, Braze reported a decline in dollar-based net retention rates. The rate for all customers dropped to 114% from 120% last year, and for those with ARR of $500,000 or more, it dropped to 117% (from 123%). Higher operating expenses were also a concern, with sales and marketing costs rising to $68.6 million (compared to $60.4 million in Q2 2024). Research and development expenses increased to $33.1 million, reflecting investments in AI and R&D initiatives.

Free cash flow was positive at $7.2 million, a significant improvement from negative $18.7 million a year ago. Cash and cash equivalents stood at $504.5 million, up from $480 million at July 31, 2024. These figures indicate improved financial stability and resource management.

Looking ahead

Management provided upbeat guidance for the next quarter and full year. For the third quarter of fiscal 2025, revenue guidance has been raised by $7 million and is expected to be between $147.5 million and $148.5 million, and non-GAAP net income/loss per share is now projected to range between $0.00 and ($0.01). For the full year, revenue guidance was raised to between $582.5 million and $585.5 million. This outlook reflects strong business momentum and improved profitability metrics.

Investors should keep an eye on Braze’s ability to maintain its growth trajectory amid competitive pressures and fluctuating market conditions. Key factors to monitor include retention rates, operating expenses, and continued innovation in AI and machine learning.