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With 117% Net Dollar Retention (NDR), $15 million net cash flow, and 44% of revenue from non-US customers, Braze delivered a strong quarter despite a service outage that caused $750K in revenue coverage.
Braze is the seventh and last to report earnings, the other six are discussed here.
The Good — Revenue Growth, Profitability, GTM Efficiency
As stated, Braze generated good cash flow, relatively steady gross margins, and high NDR. What’s more, they’re taking an internal execution-focused view on efficient spending. CEO Bill Magnuson defined it as, “buckling down and making meaningful internal changes, making big investments in our go-to-market enablement, in our partnership ecosystem, in our event footprint, and in our community building.”
Braze is also seeing better messaging optionality thanks to competition between the CPaaS providers.
The Interesting — Enterprise Focus, Snowflake Partnership, WhatsApp
While 10% of its customers Braze defines as enterprise, unlike Klaviyo, they do skew more traditional enterprise. Quoting Bill again, “I’ll remind everyone that for us, SMB is not the long tail of SMB since we still have that price floor and an annual contract requirement with that price floor in the [20,000] range.”
This also explains the buying pressure on deals, the extended RFP reviews, and the Snowflake partnership to help customers with improved use case support. However, it also shows the “low single digit” revenue from WhatsApp. Here is the disconnect with that number: if 44% of the business is non-US, and WhatsApp is a dominant messaging platform outside of the US, then the low WhatsApp revenue is either indicative that the adoption of the medium is not as high as we’d like to believe, or maybe the enterprise buyer is making a cost instead of a consumer reach decision.
The Unknown — The Market
Whenever a business stops focusing on MAU vs. Contract Size, it means they’re moving more upmarket into the enterprise space, which has a very different buying profile. Except Klaviyo and Sinch’s SimpleTexting/MessageMedia business, all the other players skew heavily into enterprise plays.
Braze, like the others, is feeling the “cautiousness” of the buyer more so than Klaviyo. The macroeconomic environment, according to Bill, “remains uncertain.”
Sidebar: System Downtime
Technical downtimes are like financial accounting corrections: the more you try to explain them, the more questions they generate. The best downtimes are the ones that don’t affect the quality of service, and the best accounting corrections don’t require restating revenue. While Braze lost $750,000 in revenue reserve, I doubt that’s the true cost of the downtime.
Even simple downtimes, like people being unable to sign up or try the product, can cause a layering effect where not only are your existing customers unhappy, but you’re also losing potential new revenue.
The following example is not from Braze.
Assume a website gets 2,000 visits per hour; 5% of those convert to sign-ups; and 40% of those sign-ups convert to paying customers. Also assume the industry standard 3:1 LTV:Customer Acquisition Cost (CAC) ratio and assume an average LTV of $30,000. If the website was down for an hour, then according to ChatGPT math, the down time cost $1.6 million. This is before you can count lost bookings. Ouch.
The numbers can add up quickly when you account for the organizational exception processing time for a downtime worthy of a Board discussion or an investor call. To this number add the customer’s lost productivity. Among all the talk about protecting developer time, it is the customer’s time that ought to be protected.
Finally
There aren’t any isolated islands of sunshine for long. Ultimately, a rising or receding tide affects everyone. Braze is still seeing softness in the enterprise space, and that is something to keep an eye on as we sail into the second half of 2024.