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Small-Cap Confidential
Undiscovered stocks that can make you rich

Cabot Small-Cap Confidential Issue: August 3, 2023

This month we’re digging into an emerging software star that specializes in helping brands communicate with consumers like you and me.

The details behind the technology are a bit technical. But if you’ve noticed an uptick in personalized emails and text messages letting you know it’s a good night to get takeout, or that those shoes you’ve been pining for are back in stock, you get the picture. Enjoy!

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The Big Idea

Once smartphones took over the world, the clock was ticking for digital marketers. They needed to step up their game, stop sending people messages that came out of left field and start sending offers and updates that aligned with what was going on in the world.

Brands also needed to be ready to answer questions, field product-specific inquiries, provide customer support and manage inventory, all in real-time.

People began doing everything from everywhere. The challenge for brands was to make digital interactions as genuine and helpful as the in-person conversations that were quickly disappearing.

This was the beginning of the modern era of customer engagement solutions. And the go-go years for customer-focused pioneers like (CRM) and Adobe (ADBE).

Today, most brands have tools that permit live chat, collect email addresses, send custom offers via text and give abandoned shopping cart updates.

But there are still significant gaps that make digital interactions with many brands feel a bit like living through an episode of The Twilight Zone.

Part of the reason is that a lot of customer engagement platforms are really good at one channel, say email, but not with text messaging.

Or they don’t consider real-world things, like weather.

A couple of weeks ago, when Vermont was getting pounded by rain and the state capital of Montpelier was literally underwater, I received an email from Vail Resorts (MTN) saying it was a perfect weekend to visit Stowe!


I know Stowe wasn’t really impacted by the flooding. But learn how to read the room guys. And get a customer engagement platform that’s not blind to real-world events.

That was something of an extreme example. But more subtly disjointed interactions are still weirdly common.

Like when you add something to a shopping cart on your smartphone, say maybe a couch, then get distracted and pick things up on your laptop the next day. Maybe you chat with a company rep about fabric options, then run off to a meeting that runs late.

Rather than get an email or text about the couch and a special offer just for you the next day the brand lets you know baby blankets are being blown out!

If we had a baby, I’d have been asking about the slipcover couch, not the upholstered one you boneheads.

Anyway …

Today we’re digging into a company that’s arguably getting close to the Holy Grail of digital marketing in the modern age.

It has a customer engagement platform that mimics authentic, real-world interactions.

The secret sauce is a platform that uses machine learning (ML) and artificial intelligence (AI) to ingest and process customer data from all channels, in real-time, then blend it with other sources to create contextual messages that don’t make consumers immediately look for the “unsubscribe” link.

Here’s the story.

The Company

Braze (BRZE) is a $4 billion market cap company with a multi-channel, personalized cloud-based customer engagement platform that brands use to connect with consumers in real-time.

The high-level pitch is that Braze’s tools allow brands to listen and understand consumers, then engage them with contextual messages that are as relevant and authentic as human interactions.

Messages are sent as push notifications, emails, text, in-product messaging and more.

The platform lets brands ingest and process customer data as it comes in, manage marketing campaigns across channels, and test and measure the impact of those campaigns.

The net result is that Braze helps brands acquire and onboard new customers, engage existing customers to achieve better customer retention, and ultimately drive higher return on marketing spend.

For example, a Braze-powered food delivery app for Pizza Hut (YUM) may combine a consumer’s food preference with weather data to send an alert to “order-in tonight” when a blizzard is coming.


Or Etsy (ETSY) might send a notification to a shopper when a favorite article of clothing is available at a bargain price after their inventory management system finds that article of clothing is available in a size and color the customer likes.

Braze has been around since 2011 when it was founded by Bill Magnuson, Jon Hyman and Mark Ghermezian with the name Appboy. The name was changed to Braze in 2017.

Today, Braze has 5.1 billion monthly active users (MAUs) and nearly 1,900 customers across retail, e-commerce, media and entertainment markets. Roughly 57% of revenue comes from the U.S.

A select list of customers includes Burger King, GrubHub, Pizza Hut, NBC, Overstock, Uber, NASCAR, Draft Kings, Rosetta Stone, Hinge, Sephora and Sonos.


In the most recent fiscal year (2023, ended on January 31) Braze’s platform sent 2.2 trillion messages and processed over 13 trillion consumer-generated data points. Revenue grew by 49%, to $255 million.

Platform & Solutions

Braze’s solutions cover all the major functions brands need in a dynamic customer engagement platform, including tools for data ingestion, classification, orchestration, personalization and action.


Data Ingestion: One of Braze’s key differentiators is that it takes in, processes and applies analytics to first-party data in real-time. Not only does this reduce risk for customers concerned about the legality and dependability of third-party data, it also offers significant competitive advantages.

With real-time data streaming, Braze customers get a live understanding of all the interactions consumers have with a brand across channels. Marketers can then use that data to better understand consumer behavior and send contextualized messages to drive deeper engagement.

Braze offers a variety of ways for customers to integrate its platform, including SDK’s, APIs and data warehouse connections, such as with Snowflake (SNOW).

Classification: Customers can segment consumers based on a variety of attributes, behaviors and more and see how different customer segments are performing. Braze’s Predictive Suite uses ML to automatically identify customers that are likely to behave similarly so brands can take pre-emptive action to engage with them.

Orchestration: Canvas Flow is the main orchestration tool and lets brands build multi-step, cross-channel messaging campaigns to do things like onboard new customers, win back lost customers or build loyalty. Tools with built-in A/B testing allow brands to see how customer groups with similar profiles respond to campaigns. AI and ML are being used in Canvas today.

Personalization: Braze’s Liquid Templating language permits brands to inject personalized content into messages, send messages at optimal times of the day, send via certain channels and more.

Action: Braze’s platform handles dynamic messaging across channels both in-product (i.e., on a company’s website or in its app) and out-of-product (i.e., email, text message, WhatsApp, etc.). A host of integrations and partnerships extends the platform’s reach while tools like activity logs and a media library permit troubleshooting and other engagement features.

Growth Initiatives

Automation and AI: People have begun to see the potential in certain AI and ML use cases, and that includes marketers and data scientists. These people understand how Braze’s platform works and they see the potential for applying AI and ML to datasets to create automated generative AI-based marketing campaigns. Braze already uses these technologies internally and is ramping up development of AI/ML features/products.

Platform Consolidation: Brands are trimming the fat and centering investments with best-of-breed providers. In customer engagement, Blaze is a major player. It is growing the number of channels it supports and bringing more analytics capabilities into its solutions. All of this points to potential for customers to consolidate their spend with Braze.

Focus on First-Party Data: Companies are seeing the inherent risks of relying on third-party data and have realized that to have a direct relationship with end consumers they need first-party data. This also helps to build targeted marketing campaigns that have a higher ROI. As a provider of first-party data, this big-picture trend is good for Braze.

International: Just over 40% of revenue comes from outside the U.S. meaning there is a sizeable opportunity out there still. Braze is ramping up operations in Europe, APAC and Latin America to go after it.

New Market Expansion: Digital transformation has been slow to arrive in regulated industries such as healthcare and financial services. But it is being adopted now, and this represents a large and unpenetrated market for Braze to expand into.

North Star Acquisition: In June 2023 North Star, Braze’s reseller in Australia and New Zealand since 2016, was acquired for $28 million in cash and stock. While the deal will only add 1% to 2% to fiscal 2024 revenue, it should provide modest profit margin lift as the “middleman” in the South Pacific is now part of the parent company.

The Business Model

Roughly 95% of Braze’s revenue comes from subscriptions with professional services accounting for the remaining 4%. Subscription fees are based on monthly active users, messaging volumes and platform add-ons. This model means Braze has leverage and is incentivized to help its customers succeed. As its customers’ users, messaging volumes, number of product subscriptions, etc. go up so too does Braze’s revenue.

The Bottom Line

Braze grew revenue by 49% to $355 million in fiscal 2023, which ended on January 31. EPS was -$0.64. In the first quarter of fiscal 2024 (reported on June 8) revenue grew by 31% to $101.8 million (beat by $2.8 million) and EPS of $0.05 beat by $0.13.

Looking forward, analysts expect fiscal 2024 revenue to grow 27% to $450 million while EPS should improve by around 20% to -$0.51. With management intent on improving bottom line results, EPS loss in fiscal 2025 could be slashed by 75% to about -$0.13 while revenue growth remains in the mid-20% range.


Competition. Customer-focused software is a competitive market with both new entrants and established players vying for market share. Acquisition activity adds another wrinkle, which can strengthen and/or weaken certain players.

Valuation/Macro: Investors remain concerned about the economy. While there is upside to software valuations in a soft-landing scenario with lower interest rates, there is also downside potential for valuations should the economy turn south or the Fed keep interest rates higher for longer. The macro climate will play a significant role in BRZE’s performance in the coming quarters.

Live Data Feed Differentiation Fades: One way Braze is different is that the platform processes data in real-time, whereas many competitors process data in batches at set times. This leads to stale information. Should more competitors upgrade real-time data processing capabilities, Braze may not stand out as much.


Adobe (ADBE), (CRM), Airship, Iterable, CleverTap, Intuit MailChimp (INTU), Twilio (TWLO), Sprout Social (SPT) and MoEngage.

The Stock

Trading Volume: BRZE’s 90-day average trading volume is 950,000 shares per day. We won’t influence this stock’s trading action.

Historical Price: BRZE came public at 65 on November 17, 2021, and jumped 45% the first day. However, with the bull market running on fumes, BRZE soon began to slide with other growth stocks. By the date of the lockup expiration in May 2022, shares were trading in the low 30s. Still, the stock didn’t bottom until it hit 22.5 in November, about one year after it came public. BRZE shaped up a little in early 2023 and was back in the mid-30s before a hiccup in late April and early May sent it back toward 25. But the stock regained momentum and closed at 34 the day before earnings came out on June 8. That report sent BRZE 16% higher, and the stock has continued to make higher highs and higher lows in the weeks since.

Valuation: BRZE currently trades with an EV/Fiscal 2024 Revenue multiple around 8, right in the mix of the average valuation of a mix of higher-growth software names including IOT, HUBS, DDOG, FRSH, CXM, MNDY and ZS, among others.

Buy Range: Prior to the Q2 earnings report, expected around September 12, expect to buy BRZE in the 41 to 48 range.

The Next Event: Q2 fiscal 2024 earnings around September 12.

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Current Recommendations

Stock NameDate BoughtPrice BoughtPrice on 8/2/23ProfitRating
Alphatec (ATEC)4/10/23161710%Buy
Braze (BRZE)NEW--42--%Buy
Duolingo (DUOL)6/1/23152144-5%Buy 1/2
Enovix (ENVX)10/6/222019-6%Hold
Flywire (FLYW)8/4/22 & 11/9/2221.623455%Buy
Inspire Medical (INSP)10/4/1959278375%Hold 2/3
Intapp (INTA)1/4/23263848%Buy
R1 RCM (RCM)7/6/2318183%Buy
Repligen (RGEN)11/2/18 & 12/31/1859170188%Sold 3/4, Hold 1/4
Si-Bone (SIBN)5/3/2324252%Buy 1/2
TransMedics Group (TMDX)7/7/223488159%Hold 3/4

Please email me at with any questions or comments about any of our stocks, or anything else on your mind.


Buy means accumulate shares at or around the current price.
Hold means just that; hold what you have. Don’t buy, or sell, shares.
Sell means the original reasons for buying the stock no longer apply, and I recommend exiting the position.
Sell a Half means it’s time to take partial profits. Sell half (or whatever portion feels right to you) to lock in a gain, and hold on to the rest until another ratings change is issued.

Disclosure: Tyler Laundon owns shares in one or more of the stocks mentioned. He will only buy shares after he has shared his recommendation with Cabot Small-Cap Confidential members and will follow his rating guidelines.

The next Cabot Small-Cap Confidential issue is scheduled for September 7, 2023.

Tyler Laundon is chief analyst of the limited-subscription advisory, Cabot Small-Cap Confidential and grand slam advisory Cabot Early Opportunities. He has spent his entire career managing, consulting and analyzing start-up and small-cap companies. His hands-on experience has taught Tyler that the development of a superior business model is the biggest factor in determining a company’s long-term success. Accordingly, his research focuses on assessing the viability of management’s growth strategies, trends in addressable markets and achievement of major developmental milestones.