Braze trades at $44.11 and has moved in lockstep with the market. Its shares have returned 11.7% over the last six months while the S&P 500 has gained 8.1%.

Is BRZE a buy right now? Find out in our full research report, it’s free.

Why Does BRZE Stock Spark Debate?

Founded in 2011 after the co-founders met at NYC Disrupt Hackathon, Braze (NASDAQ:BRZE) is a customer engagement software platform that allows brands to connect with customers through data-driven and contextual marketing campaigns.

Two Positive Attributes:

1. ARR Surges as Recurring Revenue Flows In

While reported revenue for a software company can include low-margin items like implementation fees, annual recurring revenue (ARR) is a sum of the next 12 months of contracted revenue purely from software subscriptions, or the high-margin, predictable revenue streams that make SaaS businesses so valuable.

Braze’s ARR punched in at $585.2 million in Q3, and over the last four quarters, its year-on-year growth averaged 29.5%. This performance was fantastic and shows that customers are willing to take multi-year bets on the company’s technology. Its growth also makes Braze a more predictable business, a tailwind for its valuation as investors typically prefer businesses with recurring revenue.

2. Operating Margin Rising, Profits Up

While many software businesses point investors to their adjusted profits, which exclude stock-based compensation (SBC), we prefer GAAP operating margin because SBC is a legitimate expense used to attract and retain talent. This is one of the best measures of profitability because it shows how much money a company takes home after developing, marketing, and selling its products.

Over the last year, Braze’s expanding sales gave it operating leverage as its margin rose by 10.3 percentage points. Although its operating margin for the trailing 12 months was negative 23.6%, we’re confident it can one day reach sustainable profitability.

One Reason to be Careful:

Breakeven Free Cash Flow Limits Reinvestment Potential

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

Braze broke even from a free cash flow perspective over the last year, giving the company limited opportunities to return capital to shareholders.

Final Judgment

Braze’s positive characteristics outweigh the negatives, but at $44.11 per share (or 6.8× forward price-to-sales), is now the time to initiate a position? See for yourself in our in-depth research report, it’s free.

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