AI marketing platform Braze (BRZE.US) reported strong performance after hours but saw a significant drop! Q2 revenue and EPS both exceeded expectations, and full-year guidance was raised.

The artificial intelligence (AI) marketing platform Braze (BRZE.US) announced better-than-expected performance for the second fiscal quarter, while also raising its full-year guidance for fiscal year 2027. The financial report showed that for the second fiscal quarter ended July 31, Braze achieved revenue of $227.2 million, a year-over-year increase of 26%, surpassing the average analyst expectation of $220.3 million; the net loss was $18.9 million, a 32% reduction compared to the net loss of $27.9 million in the same period last year; the adjusted earnings per share were $0.19, better than the average analyst expectation of $0.15. Braze indicated that revenue growth was primarily driven by upselling, renewals, and new customers. By segment, subscription revenue increased by 21% year-over-year to $207.7 million, exceeding the average analyst expectation of $204.2 million; professional services and other revenue surged by 136% year-over-year to $19.6 million, also surpassing the average analyst expectation of $15.93 million. As of the end of the second fiscal quarter, Braze had a total of 2,789 customers, up from 2,422 in the same period last year, including 361 customers with annual recurring revenue (ARR) of $500,000 or more. Both the overall customer base and larger customers experienced improvements in their net retention rates. As of July 31, the remaining performance obligations amounted to $1.09 billion, with $691.1 million classified as current revenue that is expected to be recognized within less than a year. It is worth noting that the GAAP gross margin declined from 67.7% to 66.8%, while the non-GAAP gross margin fell from 69.3% to 68.6%. Braze did not provide specific reasons for the decline in gross margin, so the continued pressure from this issue remains a point of concern. However, the growth rate of operating expenses was much lower than that of revenuethe operating expenses increased by 6% year-over-year to $170 million in the second fiscal quarter, significantly below the 26% year-over-year growth rate in revenue for the same period. This indicates that despite a decline in gross margin, the companys operating leverage has improved. CEO Bill Magnuson attributed this quarters performance to Brazes role in helping customers achieve significant returns on investment. He stated that as customers focus more on return on investment, the application of products such as BrazeAI Operator, BrazeAI Agent Console, and BrazeAI Decisioning Studio is accelerating. Braze has also enhanced its artificial intelligence capabilities and established a three-year strategic partnership with AWS, while strengthening integration with Databricks CustomerLake. New customer successes include Chime, Wilson Sporting Goods, Foxtel Group, and several international brands. For the third fiscal quarter, Braze expects revenue to be between $229 million and $230 million, better than the average analyst expectation of $227.5 million; it expects adjusted earnings per share to be between $0.13 and $0.14, slightly below the average analyst expectation of $0.16. Braze has also raised its full-year guidance. The company currently expects revenue for fiscal year 2027 to be between $910 million and $913 million, up from the previous expectation of between $895 million and $899 million, with the average analyst expectation at $898.2 million; it anticipates full-year adjusted earnings per share to be between $0.64 and $0.65, compared to the previous expectation of between $0.61 and $0.65, with the average analyst expectation at $0.63. However, as of the time of publication, Brazes stock fell nearly 13% in after-hours trading on Tuesday.