Braze (BRZE) and Liquidity Services (LQDT) Report
Last evening, I was pleased to see shares of Braze (BRZE) respond well in after-hours trading to the Q3 fiscal 2024 beat. Revenue grew 33.1% to $124 million (beating by $6.7 million) while EPS of -$0.05 beat by $0.08. This morning, during my pre-sunrise walk, I listened to the conference call again and was still happy as shares were +8% pre-market. But I’m a bit disappointed midday today to see shares down about 5%. In fairness, I did move the stock to hold last Thursday as it seemed a little extended to the upside. But I thought the solid report and a wave of price target upgrades (Piper Sandler from 57 to 66, Needham from 60 to 70, Barclays from 65 to 80, JMP from 56 to 68, Oppenheimer from 52 to 66, Goldman from 55 to 63, Canaccord Genuity from 55 to 70) would keep shares at least close to their closing price of 56.1 yesterday.
If there’s a negative to call out it’s likely that management continues to bang the “cautious” drum, and activity at the small end of the market (SMB market) remains slow due to a “tough macro,” though this isn’t remotely unique to Braze and activity in their larger Enterprise market is going very strong. At the end of the day, management guided for full-year fiscal 2024 revenue in the range of $465 to $466 million (+31% at the midpoint), which is well above consensus for $454 million heading into the event, and adjusted EPS of -$0.26 to -$0.27, which is also better than forecast. Management also confirmed they expect to get to adjusted EPS profitability in fiscal 2025.
There are a few moving pieces here but, stepping back, it was a solid quarter and the share price action today may just be some giveback due to the run into the event. I’m keeping BRZE at hold and will keep a close eye on it. HOLD
Moving on to Liquidity Services (LQDT), shares are down about 12% after this morning’s Q4 fiscal 2023 earnings report, which was a bit light on revenue but beat on the bottom line. Revenue grew 6.3% to $80 million while EPS grew 37% to $0.26 and beat by $0.02. It wasn’t a blowout quarter, but it certainly wasn’t bad. For each segment, the company reports both gross merchandise value (GMV), which is the total value of goods sold, and revenue, which is the amount Liquidity Services gets from those sales. By looking at the two trends for each one we can get a sense of the profit trend in each segment.
In the GovDeals segment (surplus and salvaged federal, state and local government assets, plus real estate), where management has been investing to modernize the platform, GMV grew by 14% with revenue growing 13%. In the Retail Supply Chain Group (RSCG) segment (mainly surplus and salvage consumer goods for larger companies), GMV grew 18% while revenue grew 15%. This difference is partially due to higher sales of lower-value consumer goods and an ongoing shift to a consignment model (discussed in my report), which means Liquidity doesn’t take ownership of the merchandise, it just sells it. The result is lower revenue but higher profit and less capital tied up (a good thing). GMV in the Capital Assets Group (CAG) segment was down 4% while revenue fell 27%, mostly because of big deals in Q4 last year that were not present (nor expected) this year. There is no GMV in the Machinio software segment, where revenue grew 15%.
Stepping back, I didn’t see anything in the quarter that challenges the bull thesis. With this type of business, there are always going to be some offsetting moving parts, but the big-picture trend is very positive. There could well be a pickup in the RSCG segment coming out of the holiday shopping season depending on where consumers spend, and don’t, and the continued technology investments should help drive more buyers and sellers to Liquidity’s platforms. Also compelling is an effort to expand Machinio – a high-margin (90%) subscription service – to Asia. As is Liquidity’s initiative to expand financing to buyers on both GovDeals and Machinio (not acting as a direct lender, they refer to actual lending institutions). Bottom line, it was a perfectly fine quarter and I suspect shares will bounce back. However, obviously, I’ll be monitoring the stock for signs of further weakness. BUY
