Braze's Q2 2026: Contradictions Emerge on Downsell Activity, OfferFit Integration, and Sales Strategy

The above is the analysis of the conflicting points in this earnings call

Date of Call: September 04, 2025

Financials Results

• Revenue: $180M, up 24% YOY and 11% sequential
• EPS: $0.15 non-GAAP diluted EPS, compared to $0.09 in the prior year
• Gross Margin: 69.3%, compared to 70.9% in the prior year
• Operating Margin: 3.4% non-GAAP, compared to 2.9% in the prior year

Guidance:

• Q3 revenue: $183.5–$184.5M (~21% YOY at midpoint)
• Q3 non-GAAP operating income: $3.5–$4.5M (~2% margin midpoint)
• Q3 non-GAAP net income: $6.5–$7.5M; EPS: $0.06–$0.07 (~113.5M diluted shares)
• FY26 revenue: $717–$720M (~21% YOY at midpoint)
• OfferFit to add ~2 pts to FY26 growth (~$11–$12M); full quarter in Q3, 8 months in FY26
• FY26 non-GAAP operating income: $24.5–$25.5M (~3.5% margin midpoint; ~350 bps improvement vs FY25)
• FY26 non-GAAP net income: $45.5–$46.5M; EPS: $0.41–$0.42 (~112M diluted shares)
• Q3 includes Forge and other event expenses

Business Commentary:

* Revenue Growth and Operational Efficiency: - Braze reported $180 million in revenue for Q2 2026, representing a 24% year-over-year increase and a 11% improvement from the previous quarter. - This growth was driven by strong demand and strategic execution globally, with a focus on verticals like retail and e-commerce, and financial services.

• Customer Acquisition and Retention:
• The company's customer count increased by 80 in Q2, with 259 new customers year-over-year, reaching a total of 2,422 customers.
• Large customers spending at least $500,000 annually rose by 27% year-over-year to 282.

• This was supported by strong customer retention, with dollar-based net retention for large customers at 111%, indicating stability in customer relationships.

• AI Integration and Product Advancements:

• Braze's acquisition of OfferFit by Braze has accelerated the pipeline for AI decisioning, particularly in the enterprise segment, enhancing competitive advantage.

• The integration of OfferFit's AI decisioning engine is expected to drive one-on-one customer personalization and elevate customer engagement strategies.

• Operating Profitability and Guidance:

• Braze reported $6 million in non-GAAP operating income for Q2 2026, with expectations for full-year 2026 non-GAAP operating income to be around $24.5 million to $25.5 million.
• This profitability was driven by disciplined cost management and increased efficiency, providing confidence in achieving long-term financial targets.

Sentiment Analysis:

• “Revenue $180M, up 24% YOY and 11% sequential.” “Passed $700M of committed ARR.” “3 straight quarters of positive non-GAAP operating income and free cash flow; 5 straight quarters of positive non-GAAP net income.” “RPO $862M, up 25% YOY; CRPO $558M, up 27% YOY.” “In-period DBNR stabilized and ticked up from Q1 to Q2.” FY26 guide: revenue $717–$720M (~21% YOY) and ~350 bps operating margin improvement; OfferFit performing to plan.

Q&A:

• Question from Brent Bracelin (Piper Sandler & Co., Research Division): What changed in demand and how can you drive higher growth and leverage?
  Response: Macro unchanged; outperformance driven by better execution, high win rates, and easing downsells, boosting visibility and profitability.

• Question from Sitikantha Panigrahi (Mizuho Securities USA LLC, Research Division): How is OfferFit resonating and what ACV uplift are you seeing?
  Response: Strong early wins across all regions; full OfferFit typically ~$300K annually with high expected enterprise attach; contributes ~2 pts to FY26 growth (~$11–$12M).

• Question from Sitikantha Panigrahi (Mizuho Securities USA LLC, Research Division): How will OfferFit affect margins as it scales?
  Response: Currently neutral to gross margin and modestly dilutive to operating income; expect margin improvement as delivery scales and synergies realized.

• Question from Brett Huff (Stephens Inc., Research Division): How is AI product usage trending and what underpins defensibility?
  Response: Broad adoption across AI features; AI lowers usability barriers and lifts productivity; roadmap adds composable models/agents to enhance autonomous engagement.

• Question from Brett Huff (Stephens Inc., Research Division): Any more color on improved sales execution?
  Response: Better qualification and stronger pipelines enable focus on winnable late-stage deals, yielding higher win rates without forcing timelines.

• Question from Raimo Lenschow (Barclays Bank PLC, Research Division): Are customer behaviors changing in an AI world to your advantage?
  Response: AI amplifies Braze’s small-team-at-scale model and ROI; fundamentals intact though switching costs still elongate cycles.

• Question from Raimo Lenschow (Barclays Bank PLC, Research Division): Outlook for DBNR reacceleration?
  Response: DBNR is stabilizing; downsell moderation and OfferFit upsell can drive eventual reacceleration, but no timeline provided.

• Question from Taylor McGinnis (UBS Investment Bank, Research Division): What drove the Q2 outperformance and how did it shape guidance?
  Response: Improved downsell and broad demand; plus ~1 point benefit from lower revenue reserves and higher overages.

• Question from Taylor McGinnis (UBS Investment Bank, Research Division): How to view CRPO vs. revenue growth trends?
  Response: CRPO trajectory is improving (even organically) in tandem with lower downsells and strong core momentum.

• Question from Brian Peterson (Raymond James & Associates, Inc., Research Division): Any geo/end-market changes in demand?
  Response: Strong performance across regions; ANZ standout aided by Australia data center; tighter regional/vertical alignment supports wins.

• Question from Brian Schwartz (Oppenheimer & Co. Inc., Research Division): Does improved productivity change sales hiring in H2?
  Response: Yes—Braze will expand sales capacity in H2, supported by smooth CRO onboarding and OfferFit integration.

• Question from Brian Schwartz (Oppenheimer & Co. Inc., Research Division): Are AI tools or low-cost locations driving margin leverage?
  Response: Leverage mainly from cost-optimized locations; internal AI efficiency gains are still early.

• Question from Matthew VanVliet (Cantor Fitzgerald & Co., Research Division): Trends in deal sizes and rep maturation?
  Response: Deal sizes, terms, and productivity are broadly stable with normal quarter-to-quarter noise; no notable trend shifts.

• Question from James Wood (TD Cowen, Research Division): Is AI disrupting search driving more spend to first-party engagement?
  Response: First-party engagement grows in importance as demand aggregators rise; AEO-related budget shifts are still early.

• Question from Yun Suk Kim (Loop Capital Markets LLC, Research Division): Channel trends and OfferFit’s channel impact?
  Response: Premium messaging (e.g., WhatsApp/RCS) growing, especially ex-US, aided by flexible credits; OfferFit typically starts with email but can optimize across channels.

• Question from Kincaid LaCorte (Citizens): $500K+ cohort rising but DBNR falling—will it reaccelerate?
  Response: DBNR shows in-period stabilization and slight improvement vs. Q1; trajectory is encouraging.

• Question from Tyler Radke (Citigroup Inc., Research Division): What’s behind better reserves/retention—messaging or MAUs?
  Response: Improved collections reflect customer health and Tier 1 status; demand is broad across SKUs with credits messaging strong; MAU growth modest.

• Question from Willow Miller (William Blair & Company L.L.C., Research Division): Any remaining ZIRP-era renewal impacts?
  Response: No further breakout; focus remains on improving downsell trends and stable in-quarter DBNR.