Q4 2024 Earnings Summary
- Braze signed its first 8-figure customer through upsells, demonstrating strong growth within enterprise customers and significant opportunities for further expansion, including replacing legacy Marketing Clouds.
- Braze's investments in AI and machine learning capabilities provide a competitive advantage, as competitors struggle to keep up with product development, enhancing Braze's product innovation and differentiation in the market.
- Braze is expanding its international footprint by opening new offices in Bucharest, São Paulo, and Seoul, and is enhancing partnerships with agencies and system integrators, which are expected to contribute more significantly to pipeline generation and future growth.
- Slowing Revenue Growth: Braze expects revenue growth to decelerate to approximately 21.5% for fiscal year 2025, down from 33% in the fourth quarter, indicating potential challenges in maintaining high growth rates.
- Declining Net Dollar Retention Rate: The company's dollar-based net retention rate has been declining sequentially, and management anticipates this trend to continue, suggesting potential difficulties in upselling and retaining existing customers at previous levels.
- Gross Margin Pressure from Lower-Margin Channels: Increased adoption of premium messaging channels like WhatsApp, which have lower margins, is expected to pressure gross margins, with non-GAAP gross margin projected to be at the low end of their long-term range in the first quarter and improve only gradually throughout the year. ,
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Demand Environment and Guidance
Q: How is the demand environment affecting guidance?
A: The macro environment remains challenging but stable, with customers exhibiting price sensitivity and buying for immediate needs rather than growth. We're increasing sales capacity after over a year, reflecting improved sales execution and opportunities. We've not changed our guidance philosophy; however, given the context, we expect less volatility in our results this year. Customers are more willing to commit to longer-term contracts again, indicating a positive trend. -
Net Dollar Retention Rate Outlook
Q: Where do you expect NDR to bottom?
A: We haven't hit the bottom on Net Dollar Retention; it may continue to tick down. Historically, it has dropped about 2% sequentially; this quarter, it dropped 1%, showing signs of stabilization. We aim for a roughly 50-50 growth mix from net new and upsells, but we're indexing slightly more towards net new. -
Competitive Landscape and Replatforming
Q: Are competitors' AI advances slowing replatforming to Braze?
A: No, we're not seeing a slowdown in customers moving from legacy platforms despite competitors' AI efforts. Legacy Marketing Clouds can't match our modern capabilities and foundation. Startups are struggling to invest in AI, and their product velocity has slowed, which benefits us. -
Investments and Resource Allocation
Q: What are the investments planned for fiscal '25?
A: We're investing broadly in R&D, marketing, and expanding sales capacity. This includes building sales capacity, increasing marketing efforts, and continuing international expansion. These investments aim to capitalize on growth opportunities and new products. -
Large Customer Expansion
Q: What does an 8-figure customer look like?
A: Our first 8-figure customer involves multiple business units across geographies, channels, and use cases. It's a testament to how Braze integrates into messaging and data back-end, enabling a coherent customer experience. There's still significant opportunity to expand even with these large customers. -
AI Capabilities Driving Growth
Q: Is Gen AI interest boosting demand?
A: Yes, Gen AI is motivating customers to adopt modern engagement strategies. It helps marketers improve productivity and accessibility of technical parts of our product. These capabilities smooth the path for customers to move beyond batch and blast methods. -
WhatsApp Adoption and Margins
Q: How does WhatsApp impact pricing and margins?
A: WhatsApp is priced similarly to SMS and email on a CPM basis. Its rapid adoption affects gross margins due to higher unit costs at current scale. As volumes grow, we expect to optimize costs and improve margins. -
Partner Ecosystem's Role
Q: Are partners contributing to sales growth?
A: While we perform sales directly, the partner ecosystem is increasingly sourcing and influencing pipeline. We're excited about the growing impact of global systems integrators and agency partners on our sales. -
Customer Churn and New Logos
Q: What's happening with new logo growth and SMB churn?
A: New logo adds are steady, but the customer count is muted due to strong upsells and SMB churn. Upsells were particularly strong in Q4, often within existing parent companies. We're still seeing churn at the lower end among SMBs, which works against logo count. -
Spam Rules Impact
Q: How do new spam rules affect growth?
A: Our customers have always been compliant with new spam rules, so there's no significant impact. Changes that add complexity to deliverability benefit Braze, as we're already well-positioned. -
Regulatory Changes Effect
Q: Are IDFA and cookie losses driving stack changes?
A: These changes emphasize first-party data investment, benefiting Braze in the long term. While not immediately discernible, they contribute positively to the secular trend towards modern customer engagement. -
Selling to Product and Data Teams
Q: How are efforts to sell to product and data teams progressing?
A: We're making data integration easier for data teams, enabling more use cases. On the product side, we're expanding capabilities that impact user experience, targeting product and engineering buyers. -
Land Deal Sizes
Q: Any changes in initial land deal sizes?
A: No material changes across segments. Land sizes remain consistent, and we focus on expansion once we're in.