Despite delivering better-than-expected second-quarter results, AI-powered marketing platform Braze, Inc. (BRZE.US) saw its stock tumble nearly 13% in after-hours trading on Tuesday. The company also raised its full-year guidance for fiscal 2027, yet investors appeared unimpressed with the forward outlook.
For the quarter ended July 31, Braze reported revenue of $227.2 million, up 26% year-over-year and exceeding the analyst consensus of $220.3 million. The company's net loss narrowed to $18.9 million, a 32% improvement from the $27.9 million loss recorded in the same period last year. On an adjusted basis, earnings per share came in at $0.19, surpassing the expected $0.15.
Braze attributed the revenue growth to a combination of upselling, renewals, and new customer acquisitions. Breaking down the figures, subscription revenue climbed 21% to $207.7 million, beating estimates of $204.2 million, while professional services and other revenue surged 136% to $19.6 million, well above the projected $15.93 million.
The company ended the quarter with 2,789 customers, up from 2,422 in the prior-year period, including 361 clients with annual recurring revenue (ARR) of at least $500,000. Net retention rates improved across both the overall customer base and the larger-tier segment. As of July 31, remaining performance obligations reached $1.09 billion, with $691.1 million classified as current revenue expected to be recognized within the next twelve months.
One point of concern: GAAP gross margin slipped to 66.8% from 67.7%, while non-GAAP gross margin declined to 68.6% from 69.3%. Braze did not provide a specific explanation for the margin contraction, leaving sustainability of this pressure as a watch item. Encouragingly, operating expenses grew just 6% year-over-year to $170 million, a significantly slower pace than the 26% revenue increase, signaling improved operating leverage despite the margin dip.
CEO Bill Magnuson credited the quarterly performance to Braze's role in driving tangible returns on investment for clients. As customers sharpen their focus on ROI, adoption of products like BrazeAI Operator, BrazeAI Agent Console, and BrazeAI Decisioning Studio is accelerating, he noted. The company also expanded its AI capabilities through a three-year strategic partnership with AWS and deepened integrations with Databricks CustomerLake. New customer wins included Chime, Wilson Sporting Goods, Foxtel Group, and several international brands.
Looking ahead, Braze guided third-quarter revenue to $229 million–$230 million, ahead of the consensus of $227.5 million, but adjusted EPS of $0.13–$0.14 came in below expectations of $0.16. For the full year, the company lifted its revenue forecast to $910 million–$913 million, up from the prior range of $895 million–$899 million, and above the average analyst estimate of $898.2 million. Adjusted EPS guidance was raised to $0.64–$0.65 from $0.61–$0.65, versus the consensus of $0.63.
The steep post-market selloff suggests that despite the headline beats and upgraded guidance, market participants may be weighing the softer EPS outlook for the upcoming quarter or the narrowing gross margins as potential headwinds for Braze.
Comments