You’re likely reading this article because we sent you a push notification on your phone. Or maybe you’re reading it as part of an email we sent you that included a link to it. Whichever way you stumbled upon this piece, it was thanks to a customer engagement platform, like Braze.
Braze, a New York City-based startup founded in 2011, is becoming a publicly-traded company on Wednesday, Nov. 17. It’s expected to be worth $5.4 billion.
Once again, early investors and executives at the company stand to make millions from the IPO. But what about you? Should you invest in Braze?
Image courtesy of Braze
The words “customer engagement platform” are mostly empty buzzwords. In essence, what they mean is that Braze allows companies to message their customers through a bunch of channels: this can be anything, from an email in your inbox to a push notification or text message.
Like any good piece of software, Braze also measures the success of those messages: how many people are reading them, clicking on them, and taking action.
As a consumer, you’ve probably received a message that was powered by Braze, especially if you have The Guardian or Paypal apps installed, as both are Braze customers.
Importantly, Braze also decides how to group consumers by category. That way, you can send messages to only the customers that need or want to see them, without having to sort them yourself. It can also send “contextualized messages,” which means everybody receives something different depending on what Braze knows about them.
This kind of company is called business-to-business, or B2B. As a consumer, you’re not the one paying for Braze — it’s other businesses.
This has upsides and downsides. B2B companies tend to have very reliable revenue — once a company decides to use a piece of software and integrates it into its processes, switching becomes a difficult and expensive process. On the other hand, that revenue often depends on one or a few big clients, and if they do decide to switch, it can spell trouble for the whole company.
Image courtesy of Braze
Understanding Braze’s business model is one thing. If we want to know whether to invest in the company, we have to look at its finances.
Luckily, we have the S1, the document every company releases before its IPO, to peruse. In it, we can spot a few things:
Braze is seeing strong revenue growth. The company made about $96 million in its 2020 fiscal year (which ended January 31, 2020), and $150 million in 2021. That’s a growth of 56%, an incredible amount for any company. But there’s one caveat here:
Braze has never made a profit. Despite the impressive revenue growth, the company had a loss of about $31 million in the 2020 and 2021 fiscal years. That’s mostly down to marketing expenses — the more money the company made, the more it spent on sales and marketing. This is not usual for startups: they tend to spend more than they make in order to grow, and rely on venture capital funding to keep them running.
Braze expects its total market to be worth $15 billion. That’s an estimate by the International Data Corporation that Braze cites in its S1. That means that if Braze were to have a 100% market share, it could theoretically have $15 billion of revenue. Of course, that kind of market share is next to impossible, but it helps investors figure out how much market share Braze has.
Braze faces stiff competition. Among them are heavyweights such as Salesforce and Adobe, which has its marketing cloud, as well as startups. Braze itself singles out a few: Airship, Iterable, Leanplum, MailChimp and MoEngage.
Lastly, there is one more piece of data: Braze has not increased its expected share price in the days leading up to the IPO, the way that Rivian did last week. That doesn’t mean the IPO will fall flat: it could also be that the banks got the price right the first time, or that Braze is not big enough to play these kinds of pricing games (remember, Rivian was worth about 15 times as much as Braze when it went to market.)
To sum up: investing in Braze is a bet on a B2B company with big clients, but still in the early stages of its growth, and that is significantly smaller than previous blockbuster IPOs we’ve seen.
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