Braze’s Q2 2026 Outperformance: A Contrarian Case for Undervalued Growth in Customer Engagement Tech

In the evolving landscape of SaaS investing, where market dynamics increasingly favor profitability over pure growth, Braze, Inc. (NASDAQ: BRZE) emerges as a compelling contrarian opportunity. Despite its Q2 2026 results—marked by 23.8% year-over-year revenue growth to $180.1 million and a 27% increase in high-value customers (ARR ≥ $500K)—the stock trades at a discount relative to its peers. This disconnect between fundamentals and valuation suggests a mispricing that value investors may exploit.

The Contrarian Thesis: Growth Meets Retention

Braze’s Q2 2026 performance underscores its ability to scale while maintaining customer stickiness. Subscription revenue grew 22.8% YoY to $171.8 million, driven by a 62% contribution from its top 282 clients, who collectively represent 27% year-over-year growth [2]. Meanwhile, dollar-based net retention (NRR) for these high-ARR customers stood at 111%, outperforming the SaaS industry median of 101% [3]. Such metrics align with 2025 valuation benchmarks, where SaaS firms with NRR above 115% command 7–14x EV/Sales multiples [1]. At a current P/S ratio of 5.15 [4], Braze appears undervalued relative to its retention-driven revenue visibility.

Rule of 40 and Profitability: A Work in Progress

The Rule of 40—a metric combining growth rate and EBITDA margin—remains a critical lens for SaaS valuation. While Braze’s EBITDA margin for Q2 2026 was -18.0% [5], its 23.8% revenue growth yields a Rule of 40 score of 5.8% (23.8 - 18.0). This lags the industry median of 51% [6], yet the company’s updated FY2026 guidance—projecting 16% revenue growth and a 400 basis point improvement in operating margin [7]—signals a path to balance. Investors should note that SaaS firms with Rule of 40 scores above 40% historically trade at 7–10x ARR [1], a range Braze could reach as margins stabilize.

Valuation Discrepancy: A Market Oversight

Braze’s forward P/E of -26.81 [8] and market cap of $3.1 billion [9] reflect lingering skepticism about its path to profitability. However, its financials tell a different story:
- Cash Reserves: $500 million in cash with no debt provides flexibility for strategic R&D or margin expansion [9].
- Customer Expansion: A 12% YoY increase in total customers to 2,422 [2], with 282 high-ARR clients contributing 62% of ARR [3], highlights scalable unit economics.
- AI-Driven Differentiation: Braze’s real-time data architecture and AI integration position it to capture market share in the $12.5 billion customer engagement tech sector, which is projected to grow at 14% CAGR through 2030 [10].

Risks and Mitigants

Critics may cite Braze’s negative EBITDA and high R&D spending (19% of revenue in Q2 2026 [5]) as red flags. Yet, these investments are justified in a sector where product innovation drives retention. The company’s FY2026 guidance includes a 5% non-GAAP operating margin [7], a 400 bps improvement from FY2025, suggesting near-term margin normalization. Additionally, Braze’s 111% NRR for top-tier clients [3] indicates strong cross-sell potential, a key driver of long-term profitability.

Conclusion: A Mispriced Growth Story

Braze’s Q2 2026 results validate its position as a leader in customer engagement tech, with growth metrics and customer retention outpacing industry averages. While its current valuation discounts near-term profitability, the company’s scalable unit economics, AI-driven differentiation, and improving margin guidance present a compelling case for undervaluation. For contrarian investors, Braze represents a high-conviction opportunity to capitalize on the market’s short-term pessimism while positioning for long-term SaaS sector tailwinds.

Source:
[1] SaaS 18july25 | PDF | Cloud Computing | Software As A ... [https://www.scribd.com/document/891995862/SaaS-18July25]
[2] Braze Revenue Jumps 24% in Fiscal Q2 [https://www.nasdaq.com/articles/braze-revenue-jumps-24-fiscal-q2]
[3] Braze, Inc. (BRZE) EBITDA margin annual & quarterly (2020–2025) [https://valuesense.io/ticker/brze/ebitda-margin]
[4] Braze Price to Sales Ratio 2021-2025 [https://macrotrends.net/stocks/charts/BRZE/braze/price-sales]
[5] Braze, Inc. (BRZE) Reports Fiscal Second Quarter 2026 Results [https://investors.braze.com/news/news-details/2025/Braze-Reports-Fiscal-Year-and-Fourth-Quarter-2025-Results/default.aspx]
[6] Your Weekly Benchmarks Just Got Better [https://www.mostlymetrics.com/p/the-benchmarks-just-got-better]
[7] Braze Q2 FY26 slides: Revenue growth accelerates to 23.8 ... [https://www.investing.com/news/company-news/braze-q2-fy26-slides-revenue-growth-accelerates-to-238-as-customer-base-expands-93CH-4225437]
[8] Braze P/E 2025 | US10576N1028 | BRZE [https://eulerpool.com/en/stock/Braze-Stock-US10576N1028/PE]
[9] Revisiting a Category Leader in Customer Engagement (BRZE) [https://alphaseeker84.substack.com/p/new-portfolio-addition-revisiting]
[10] AI valuation multiples: most valuable industries in 2025 [https://saas.group/blog/ai-valuation-multiples-most-valuable-industries-in-2025/]