Q2 2025 Earnings Summary
- Braze has added its second and third 8-figure customers this quarter, driven by geo-expansion, expansion into new business units, and channel expansion. This demonstrates the company's ability to significantly grow with existing customers and diversify its revenue streams.
- The company is implementing strategic initiatives such as Braze for Startups and a free trial program to improve acquisition efficiency and expand its customer base. These efforts aim to build long-term competitive advantages and position Braze for future growth despite the challenging macroeconomic environment.
- Braze is actively preparing full support for RCS (Rich Communication Services) ahead of Apple's support in iOS 18. By leveraging existing investments in multi-channel support, Braze is poised to enhance customer engagement capabilities and open new avenues for growth.
- Elevated churn levels remain more elevated than desired, with compounding churn mixing into subsequent quarters. This ongoing elevated churn is putting pressure on net retention rates.
- Net Retention Rate (NRR) is declining and expected to continue to decline, with the CFO stating that they are not yet at the bottom, and the company's guidance embeds continued pressure on this metric.
- The company does not expect gross margins to continue improving at the same rate, despite overachieving internal expectations this quarter, indicating potentially limited future margin expansion.
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Net Retention Rate Outlook
Q: Is NRR at the bottom, and what's the outlook?
A: Isabelle noted that net retention rate hasn't stabilized yet, and they are embedding continued pressure on this metric in their guidance, expecting further decline before it bottoms out. The impact from the prior acquisition was minimal, with small percentage points affecting the metric due to lapping the acquisition. , -
Macro Environment Impact
Q: Has the macro environment worsened recently?
A: Isabelle explained that while they are seeing continued pressure, they aren't observing any abnormal changes versus expectations. The decline in NRR is partly due to rolling off stronger historical quarters and some elevated churn levels, but nothing unexpected or not embedded in their guidance. Contracting terms impacted deferred revenue due to a dip in annual upfront terms, leading to smaller invoices divided into increments. , -
Growth Initiatives and Reacceleration
Q: How can the business reaccelerate in this macro?
A: Bill emphasized investments in initiatives like Braze for Startups and free trials to improve acquisition efficiency. They're balancing foundational efficiency improvements with frontier investments in new geographies and verticals such as travel, hospitality, financial services, retail, and commerce. These efforts aim to drive future growth and achieve category dominance in customer engagement. , -
AI's Role in Competitive Position
Q: Is AI a differentiator in replacing legacy systems?
A: Bill stated that AI is an important part of every deal cycle, but there's still a lot of noise, and customers struggle to discern real capabilities. Braze feels confident due to their strong foundations in real-time capability and comprehensive data management. This positions them well against legacy marketing clouds that lack innovation and focus in marketing and customer engagement. -
Margin Improvement and Sustainability
Q: Are gross margin improvements sustainable?
A: Isabelle noted they overachieved in gross margin improvement due to efficiencies in personnel and tech stack. While these improvements are sustainable, she cautioned that margins may not continue increasing at the same rate sequentially. -
Large Customer Growth Drivers
Q: What's driving growth in 8-figure customers?
A: Bill explained that the growth came from different drivers: one customer expanded through geo-expansion, another by entering new business areas, and the third via channel expansion and project growth. He sees continued opportunity for growth within these customers. -
International Growth vs. Domestic
Q: Why is international growth stronger than domestic?
A: Bill mentioned that international growth is boosted by investments in new geographies, leading to faster growth rates compared to more mature domestic markets. While macro pressures exist globally, they're finding pockets of strength internationally and are investing accordingly. -
Go-to-Market Strategies
Q: Are there changes in go-to-market resource allocation?
A: Bill indicated they're focusing investments on areas with strong acquisition efficiency, like enterprise. They're also making foundational improvements in the SMB segment through product-led growth initiatives like free trials to enhance future efficiency and balance their growth strategy. -
Data Platform Role and Monetization
Q: How does the Braze Data Platform add value?
A: Bill described the Braze Data Platform as enabling quick, complete data ingestion with low total ownership cost, enhancing customer engagement outcomes. While some features are monetized, the platform primarily serves to increase customer use cases, channel expansion, and overall contract value by delivering great customer experiences. -
Free Trial Impact on Acquisition
Q: What is the impact of free trials on deal sizes?
A: Bill stated they don't expect material changes in average deal sizes due to free trials. The trials mainly assist technical stakeholders in evaluating the product, improving deal efficiency, especially in enterprises with multiple stakeholders involved in buying decisions. ,