New York City-based Braze, Inc. (BRZE) is a leading comprehensive customer engagement platform that operates internationally. The platform allows global brands to process customer data in real-time, thereby allowing them to develop contextually relevant, cross-channel marketing campaigns.

BRZE went public through a traditional IPO on November 17, 2021. BRZE listed eight million shares on the Nasdaq stock exchange, priced at $65 per share. On its first trading day, the stock opened at $87.20, or 34.2% above its listing price. But broader market weakness and its unsustainable valuation have caused BRZE’s shares to decline 17.3% since then to close Thursday’s trading session at $77.21.

However, the company did not raise any proceeds from the initial public offering because the shares were sold by existing stockholders. The offering’s principal purpose was to create a public market for its class A common stock to facilitate its future access to the capital markets and increase its financial flexibility. But with no additional capital raised, BRZE’s funding requirements might remain unmet in the short term.

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Here is what could shape BRZE’s performance in the near term:

Mixed Quarterly Results

For its fiscal third quarter, ended October 31, 2021, BRZE’s revenues increased 62.6% year-over-year to $64 million. This can be attributed to a 61.1% improvement in subscription revenues and an 88% rise in professional services and other revenues. BRZE’s total customers increased 48.3% from the same period last year to 1,247 as of October 31, 2021.

However, its loss from operations widened 18.9% from its year-ago value to $10.45 million. And its net loss widened 2.7% from the prior-year quarter to $9.06 million. Its loss per share came in at $0.42.

Stretched Valuation

In terms of forward EV/Sales, BRZE is currently trading at 30.94x, which is 631.5% higher than the 4.23x industry average. Its 30.50 forward Price/Sales multiple is 638.1% higher than the 4.13 industry average. In addition, the stock’s 5.94 forward Price/Book ratio is slightly higher than the 5.92 industry average.

Also, BRZE’s EV/EBITDA multiple is negative 146.05.

Consensus Rating and Price Target Indicate Potential Upside

Each of the 12 Wall Street analysts that rated BRZE have rated it Buy. The $89.18, 12-month median price target indicates 15.5% potential upside from Thursday’s $77.21 closing price. The price targets range from a low of $80.00 to a high of $100.00.

POWR Ratings Reflect Uncertainty

BRZE has a C overall rating, which equates to Neutral in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

BRZE has a C grade for Growth, Quality, and Momentum. Analysts expect BRZE’s revenues to rise 42.1% next year. However, its consensus EPS estimate indicates a 39.4% year-over-year decline next year, which is in sync with its Growth grade. In addition, BRZE’s 67.22% trailing-12-month gross profit margin is 36% higher than the 49.42% industry average. However, the company’s trailing-12-month net profit margin is negative, justifying the Quality grade.

The stock is currently trading below its 50-day moving average of $71.75, which is in sync with the Momentum grade.

Of 169 stocks in the F-rated Software – Application industry, BRZE is ranked #81.

Beyond what we have stated above, we have also rated BRZE for Sentiment, Stability, and Value. Get all BRZE ratings here.

Bottom Line

BRZE’s trailing-12-month dollar-based net retention rate for all its customers stood at 125% as of July 31, 2021. Its cross-channel approach and data streaming architecture give it a unique edge over its peers. However, BRZE has stated in its prospectus that investing in its class A stock involves substantial risk. Thus, we think investors should wait until the company’s market share and profit margins improve before investing in the stock.

How Does Braze, Inc. (BRZE) Stack Up Against its Peers?

While BRZE has a C rating in our proprietary rating system, one might want to consider looking at its industry peers, Open Text Corporation (OTEX), Progress Software Corporation (PRGS), and National Instruments Corporation (NATI), which have an A (Strong Buy) rating.

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BRZE shares were trading at $79.10 per share on Monday morning, up $1.89 (+2.45%). Year-to-date, BRZE has declined -15.30%, versus a 28.44% rise in the benchmark S&P 500 index during the same period.

About the Author: Aditi Ganguly

Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities. More...

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