Braze Beats Q2 Estimates, Shares Fall Despite Strong Performance

Braze reported fiscal Q2 2027 earnings, exceeding Wall Street expectations with an adjusted EPS of $0.19, up from the forecast of $0.15. Revenue for the quarter reached $227.2 million, a 26% year-over-year increase and an 8% sequential growth, surpassing the expected $220.23 million by $6.97 million. Subscription revenue accounted for 91% of total revenue, with non-GAAP operating income rising to $22 million, a significant improvement from the previous year's $6 million. The non-GAAP operating margin saw a substantial increase of over 600 basis points year-over-year. Non-GAAP gross profit was $156 million, with a gross margin of 68.6%, though it fell by 70 basis points compared to the previous year. Operating expenses were $134 million, representing 58.9% of revenue, down from 66% a year earlier. Free cash flow reached a record $22 million for the quarter, up from $4 million in the previous year, while operating cash flow was $24 million, an increase from $7 million a year earlier. Liquidity metrics showed cash, equivalents, and marketable securities totaling $414 million, with a current ratio of 1.24. Remaining performance obligations (RPO) totaled $1.1 billion, up 27% year-over-year, with current RPO reaching $691 million, a 24% increase from the previous year. Customer metrics indicated a 15% year-over-year rise in total customers to 2,789, with net customer additions increasing by 76 sequentially. Large customers, spending $500,000+ annually, grew by 28% year-over-year to 361, generating 65% of annual recurring revenue, up from 62% a year ago. Net retention rates were 110% across all customers and 112% for large customers, up 100 basis points quarter-over-quarter. Large customer platform adoption metrics were strong, with 87% using the Braze Data Platform, 91% adopting Canvas, 57% using cloud data ingestion, 96% using the SDK, 98% using REST APIs, and 87% recapturing generated data via current streaming or Snowflake data sharing. Paid AI adoption reached roughly one-third of the large customer cohort in Q2, up about 900 basis points from Q1. Despite these positive results, Braze's shares fell 5.16% in the regular trading session to close at $30.31, down from the previous close of $31.96. After-hours trading saw shares drop an additional 12.11% to $26.64, putting the stock about 16.6% below the prior day's close. The 52-week range for Braze's shares was between $15.26 and $37.33, with a market capitalization of $3.6 billion, reflecting a 50.5% return over the prior six months. For fiscal Q3, Braze guided revenue between $229 million and $230 million, non-GAAP operating income between $16 million and $17 million, and non-GAAP net income per share between $0.13 and $0.14. Full fiscal year guidance included revenue between $910 million and $913 million, non-GAAP operating income between $75.5 million and $76.5 million, and non-GAAP net income per share between $0.64 and $0.65. Key executives mentioned during the call included Bill Magnuson, Co-founder and Chief Executive Officer; Pankaj Malik, Interim Chief Financial Officer; and Christopher Ferris, Vice President of Investor Relations. Braze's product suite includes BrazeAI, Operator, Decisioning Studio, Agent Console, Content Optimizer, AI Item Recommendations, Predictive Suite, Knowledge Sources, Agentic Standards, Canvas, Currents, and Forge. The company partners with AWS, Databricks, Google BigQuery, and Snowflake. Notable customer wins mentioned included Virgin Media O2, which used Operator to cut campaign quality assurance processes from six hours to seconds, and Motorway, which achieved a 114% lift in clicks and drove 37% more car valuations using Content Optimizer. Other customers mentioned include Boots Thailand, Chime, David Jones, Foxtel Group, Insurify, Omaze UK, Property Finder, Wilson Sporting Goods, a global quick service restaurant, a bank in APAC, a European retailer, and an American challenger bank. Bill Magnuson commented on the company's AI strategy, stating, "The question underneath most investor conversations right now is what sits above it. As AI models improve and converge, where does enduring value get created? The market's answer is coalescing around the harness." He also highlighted Braze's product usability, noting, "We believe that we are now breaking that trade-off. Braze is getting both more powerful and easier to use at the same time."