Executive Summary / Key Takeaways

• Braze is a leading customer engagement platform capitalizing on the shift to first-party data and AI, positioning itself to gain market share from legacy marketing clouds and point solutions.
• The company has achieved a significant financial milestone, reaching non-GAAP operating income and net income profitability and expects to sustain this while balancing growth investments.
• Strategic initiatives, including the acquisition of AI decisioning company OfferFit and enhancements to the Braze Data Platform and flexible pricing model, aim to deepen technological differentiation and improve go-to-market efficiency.
• Despite a persistent "noisy and uneven" macroeconomic environment impacting customer spending behavior and dollar-based net retention rates, Braze forecasts continued revenue growth and operating margin expansion in fiscal year 2026.
• Key factors for investors to monitor include the successful integration and monetization of OfferFit, the recovery trajectory of dollar-based net retention, and the impact of macroeconomic conditions on enterprise deal cycles and customer spending.

Setting the Scene: The Engagement Imperative

Braze, Inc. stands at the forefront of the customer engagement platform (CEP) market, empowering brands to forge deeper, more meaningful connections with consumers. Founded in 2011, the company's mission to "Be Absolutely Engaging" is built upon a cloud-based platform designed for real-time, customer-centric experiences across an ever-expanding array of digital channels. In an era defined by digital transformation, the increasing importance of first-party data, the explosion of AI capabilities, and the proliferation of communication channels, the ability for brands to effectively understand and interact with their customers at scale has become a strategic imperative.

The CEP market is dynamic and intensely competitive. Braze faces established giants like Salesforce (CRM) and Adobe (ADBE), whose broad marketing clouds offer extensive suites but are often perceived as having antiquated technology and siloed architectures ill-suited for modern, agile engagement needs. Simultaneously, the company competes with numerous channel-specific point solutions (e.g., Iterable, Klaviyo, MoEngage) and even customers' own homegrown tools. While legacy competitors possess significant advantages in scale, resources, and entrenched enterprise relationships, Braze positions itself as a modern, agile alternative built on a unified, real-time foundation. The strategic landscape is further shaped by trends towards vendor consolidation and the increasing demand for AI-driven insights and automation, creating opportunities for platforms that can offer comprehensive, intelligent solutions.

Braze's overarching strategy is centered on a land-and-expand business model. The goal is to make the platform easy to adopt with rapid time to value, then grow within existing customers by adding channels, products, business units, and geographies as their needs and end-user reach increase. This is supported by continuous investment in product innovation, global expansion, and enhancing go-to-market efficiency, all aimed at capturing market share and establishing Braze as a category leader.

Technological Foundation: Fueling Real-Time Relevance

At the heart of Braze's offering is its differentiated technology stack, built for the demands of modern, real-time customer engagement. The platform is underpinned by a powerful event-driven stream processor that enables rapid data ingestion and activation, allowing brands to react to customer behavior and context in milliseconds. This tightly integrated architecture stands in contrast to the often fragmented systems of legacy marketing clouds.

A key component of this foundation is the Braze Data Platform, launched in July 2024. This platform provides a comprehensive set of capabilities and partner integrations designed to streamline the complex process of unifying, activating, and distributing first-party customer data from any source. Features like cloud data ingestion integrations (supporting platforms such as AWS S3, Azure, Snowflake (SNOW), and Databricks) and cloud data injection segments (enabling zero-copy audience building directly from data warehouses) empower marketers to leverage their existing data ecosystems with greater flexibility and lower total cost of ownership. Automated identity resolution capabilities help maintain accurate customer profiles across various digital touch points, a critical function as the browser cookie landscape evolves. This focus on data fluidity and governance is foundational, ensuring that the rich first-party data brands are increasingly collecting can be effectively utilized for sophisticated engagement strategies.

Braze is also making significant strides in integrating Artificial Intelligence and Machine Learning throughout its platform. The Braze AI suite already offers features to enhance marketer productivity and campaign performance. Looking ahead, Project Catalyst, a native AI agent currently in private beta (expected late Q1 FY26), aims to revolutionize personalization by enabling brands to define goals and guardrails, allowing Braze AI to autonomously create, test, and optimize experience variations at scale for individual consumers. This moves beyond traditional A/B testing to truly one-to-one optimization.

Further accelerating its AI roadmap and competitive differentiation, Braze completed the acquisition of OfferFit, an AI decisioning company, in June 2025 for $325 million in cash and stock. OfferFit's proprietary reinforcement learning technology and multi-agent decisioning engine autonomously explore solution spaces for lifecycle marketing campaigns, providing individualized recommendations for cross-channel delivery and content. This technology, which replaces manual experimentation with autonomous learning agents, is expected to be integrated throughout the Braze platform, enhancing existing features and enabling new, high-value use cases. OfferFit's existing offering, typically priced around $250k-$300k annually per use case including expert services, complements Braze's enterprise motion and is expected to increase deal sizes and differentiate Braze against competitors by offering a wide spectrum of AI-driven optimization capabilities.

Channel breadth is another critical technological differentiator. Braze supports a wide range of messaging channels, including push notifications, email, in-product messaging (Content Cards, in-app messages), SMS, MMS, RCS, and popular international channels like WhatsApp and LINE. The platform's architecture is designed to add new channels quickly and efficiently. Recent expansions include the general availability of LINE messaging and the opening of an early access program for RCS business messaging, coinciding with Apple's (AAPL) support for RCS in iOS 18. To facilitate easier adoption and expansion across these channels, Braze introduced a flexible credit model in FY24, later expanding its scope in FY26 to include more channels. This allows customers to use credits fungibly, removing friction from the sales process and encouraging experimentation with new engagement strategies.

For investors, Braze's technological focus translates into several key benefits. The real-time, integrated stack provides a performance advantage that is difficult for legacy systems to replicate. The investment in the Braze Data Platform enhances the value and usability of customers' first-party data, increasing platform stickiness. The aggressive push into AI, both through internal development (Project Catalyst) and acquisition (OfferFit), positions Braze at the forefront of a critical market trend, offering tangible benefits in personalization, optimization, and marketer productivity. The broad and expanding channel support ensures brands can reach consumers where they are, while the flexible credit model simplifies purchasing and encourages platform expansion. These technological advantages collectively contribute to Braze's competitive moat, driving customer value, supporting expansion, and underpinning the long-term growth strategy.

Business Model and Operational Execution

Braze's land-and-expand model has been a key driver of its growth. The company focuses on acquiring new customers and then increasing their value over time through upsells and cross-sells of additional channels, products, and services. This is reflected in the growth of its customer base and the performance of its dollar-based net retention rate (DBNRR). As of April 30, 2025, Braze had 2,342 customers, an increase of 240 year-over-year. The number of large customers, defined as those with $500,000 or more in annual recurring revenue (ARR), grew 24% year-over-year to 262, demonstrating success in penetrating and expanding within larger enterprises.

The DBNRR, a key indicator of expansion within the existing customer base, stood at 109% for all customers and 112% for large customers for the trailing 12 months ended April 30, 2025. While still indicating expansion, these figures reflect pressure from the current macroeconomic environment. Management notes that the "noisy and uneven" macro and high interest rates have led customers to renew contracts at levels more closely aligned with current needs rather than anticipated future growth, impacting upsell sizes. Additionally, churn levels have been somewhat elevated, influenced by the rightsizing of contracts signed during the earlier zero-interest-rate environment. However, management anticipates churn numbers will improve later in fiscal year 2026, and post-ZIRP cohorts are already showing better DBNRR performance than earlier ones.

Geographic expansion is another critical component of Braze's strategy. International revenue contributed 46% of total revenue in Q1 FY26, up from 44% in Q1 FY25, indicating increasing market penetration outside the United States. The company continues to invest in expanding its presence in Europe, Asia-Pacific, and Latin America, supported by the strategic rollout of data centers in regions like Australia and Indonesia to address growing data residency requirements.

Braze is also strategically leaning into specific verticals, such as retail/consumer goods and financial services, to tailor its offerings and go-to-market efforts. A new strategic partnership and integration with Shopify (SHOP), announced in March 2025, enhances Braze's e-commerce features and strengthens its position in the retail vertical. Efforts to engage with the broader partner ecosystem, including agencies and global systems integrators (GSIs), are aimed at accelerating deal cycles and improving implementation success.

To improve acquisition efficiency, particularly in commercial segments, Braze launched initiatives like "Braze for Startups" and a 14-day free trial program in September 2024. These programs aim to lower the barrier to entry, build the Braze community, and establish the platform as a premier skill set and reference architecture for customer engagement practitioners.

Operational efficiency has been a significant focus, contributing to improved financial performance. The company has demonstrated strong operating leverage, with non-GAAP operating margins improving significantly over the past two fiscal years. This focus on disciplined investment and resource deployment is expected to continue as Braze balances growth initiatives with its commitment to profitability.

Financial Performance and Liquidity

Braze's recent financial results demonstrate a trajectory towards sustained profitability, even amidst a challenging macroeconomic backdrop. For the first quarter of fiscal year 2026 (ended April 30, 2025), the company reported revenue of $162.1 million, a 19.6% increase year-over-year compared to $135.5 million in Q1 FY25. Subscription revenue, the primary driver, grew 19.0% to $154.9 million, while professional services revenue increased 35.0% to $7.2 million, reflecting increased demand for implementation and onboarding services tied to prior-quarter bookings strength.

Gross profit for Q1 FY26 was $111.2 million, resulting in a gross margin of 68.6%. This represents an improvement from 67.1% in Q1 FY25, driven primarily by efficiency gains in the technology stack and personnel, partially offset by higher premium messaging volumes.

Operating expenses totaled $151.4 million in Q1 FY26, up from $131.0 million in Q1 FY25. Sales and marketing expenses increased by 6.2% to $74.1 million, reflecting investments in headcount and global expansion. Research and development expenses rose 7.1% to $36.8 million, driven by increased headcount to support product development. General and administrative expenses saw a significant 51.2% increase to $40.5 million, primarily due to professional services and legal costs associated with the OfferFit acquisition.

Despite the increase in operating expenses, Braze achieved non-GAAP operating income of $3.0 million in Q1 FY26, a substantial improvement from a non-GAAP operating loss of $10.0 million in Q1 FY25. This marks the fourth consecutive quarter of non-GAAP net income profitability, with non-GAAP net income reaching $7.0 million in Q1 FY26. The GAAP net loss for the quarter was $35.6 million, and the company held an accumulated deficit of $622.6 million as of April 30, 2025, reflecting its history of investing for growth.

Liquidity remains strong. As of April 30, 2025, Braze held $539.8 million in cash, cash equivalents, and marketable securities.

Cash provided by operating activities was $24.1 million in Q1 FY26, up from $19.4 million in Q1 FY25, driven by improved collections and deferred revenue growth. Non-GAAP free cash flow was $22.9 million in Q1 FY26, compared to $11.4 million in Q1 FY25, although this included approximately $6 million in vendor payments related to the OfferFit acquisition. The company believes its current liquidity position is sufficient to meet its working capital and capital expenditure requirements for at least the next 12 months, despite significant non-cancelable purchase commitments ($196.8 million) and operating lease obligations ($113.9 million).

Competitive Positioning and Market Dynamics

Braze's competitive positioning is defined by its ability to offer a modern, integrated, real-time platform that leverages first-party data and AI more effectively than many legacy alternatives. While facing larger, more resource-rich competitors like Salesforce and Adobe, Braze differentiates through its technical architecture, speed of innovation, and focus on the customer engagement use case.

Compared to legacy marketing clouds, Braze highlights their perceived lack of investment in core customer engagement products and their outdated, siloed architectures. This creates an opportunity for Braze to win enterprise deals, particularly as brands seek to consolidate fragmented point solutions and replace legacy systems that are not "fit for purpose" for modern needs. Braze's AI capabilities, including the Braze AI suite, Project Catalyst, and the newly acquired OfferFit technology, are key differentiators, positioning the company at the forefront of AI-driven personalization and optimization, an area where legacy players are seen as lagging.

Against point solutions, Braze offers a more comprehensive, cross-channel platform built on a unified data foundation. While some point solutions may compete on specific features or price, Braze's integrated stack and ability to orchestrate complex customer journeys across multiple touch points provide a significant advantage, leading to higher win rates against these competitors.

Braze's strategic responses to the competitive landscape include continuous investment in its core technology (event-driven processor, data platform), aggressive innovation in AI and new channels, enhancing its go-to-market motion (verticalization, partnerships, flexible pricing), and building its customer community. The flexible credit model, for instance, directly addresses a point of friction in purchasing and expansion, making Braze easier to buy and grow with compared to more rigid licensing models. The focus on enabling technical stakeholders to evaluate the product through initiatives like the free trial program is also a strategic move to differentiate in complex enterprise buying cycles where technical validation is increasingly critical.

Despite the competitive intensity and macroeconomic headwinds, Braze's ability to continue growing revenue, expand its large customer base, and achieve profitability suggests its strategic positioning and technological differentiation are resonating in the market. The legacy replacement cycle and vendor consolidation trends are expected to continue providing tailwinds, creating opportunities for Braze to gain market share.

Outlook, Guidance, and Risks

Braze's outlook for fiscal year 2026 reflects a balance between continued growth and sustained profitability, while acknowledging the persistent macroeconomic uncertainty and integrating the impact of the OfferFit acquisition.

For the second quarter of fiscal year 2026 (ending July 31, 2025), Braze expects revenue in the range of $171 million to $172 million, representing approximately 18% year-over-year growth at the midpoint. Non-GAAP operating income is projected between $0.5 million and $1.5 million, implying a non-GAAP operating margin of around 1% at the midpoint.

For the full fiscal year 2026 (ending January 31, 2026), the company forecasts total revenue between $702 million and $706 million, representing approximately 19% year-over-year growth at the midpoint. This guidance includes an estimated contribution of approximately 2 percentage points, or $11 million to $12 million, from the OfferFit acquisition. Non-GAAP operating income is expected in the range of $5.5 million to $9.5 million, implying a non-GAAP operating margin of approximately 1% at the midpoint, a roughly 100 basis point improvement over FY25. Management notes that the OfferFit acquisition will cause a temporary, modest dilution to non-GAAP operating margins in FY26, representing a departure from the previously outlined margin expansion framework, with a return to more meaningful year-over-year expansion expected in fiscal year 2027.

The guidance is based on the assumption that the macroeconomic environment remains "noisy and uneven" with no meaningful improvement in demand trends in the near term. Deal scrutiny and elongated sales cycles are expected to continue. While DBNRR is under pressure, management anticipates improvement later in the year and expects revenue growth to stabilize and inflect before DBNRR fully recovers.

Several risks could impact Braze's ability to achieve its outlook. Continued macroeconomic instability could further dampen customer spending, extend sales cycles, and exacerbate pressure on DBNRR and collections. The company has identified a material weakness in its internal control over financial reporting related to IT general controls, which requires remediation and could affect financial reporting accuracy if not effectively addressed. The shift to a hybrid work model presents operational challenges and potential risks related to data security and regulatory compliance across jurisdictions. The increasing use of AI and machine learning, while a key differentiator, also introduces risks related to flawed algorithms, bias, evolving regulations, and potential liability. Reliance on third-party cloud infrastructure providers and messaging channels exposes Braze to service disruptions and policy changes. Intense competition could lead to pricing pressure or loss of market share. Finally, successfully integrating acquired businesses, particularly OfferFit, is crucial to realizing anticipated synergies and avoiding operational disruption.

Conclusion

Braze is a compelling investment case centered on its position as a modern, technologically advanced customer engagement platform poised to capture market share in a growing, yet competitive, industry. The company's core strengths lie in its real-time, integrated architecture, leadership in AI and data activation, and expanding cross-channel capabilities, which differentiate it from legacy competitors and fragmented point solutions. Recent financial performance demonstrates a successful pivot to sustained non-GAAP profitability, providing a stronger foundation for future growth investments.

While macroeconomic headwinds and competitive pressures present ongoing challenges, Braze's strategic focus on product innovation (including the OfferFit acquisition and Project Catalyst), go-to-market efficiency, and verticalization positions it to navigate these dynamics. The outlook for fiscal year 2026 signals continued revenue growth and operating margin expansion, albeit with a temporary impact from acquisition integration costs. Investors should closely monitor the execution of the OfferFit integration, trends in customer spending and DBNRR recovery, and Braze's ability to maintain its technological edge in the rapidly evolving AI and customer engagement landscape.