Braze's Q3 2026: Contradictions Emerge on AI, OfferFit Integration, and Revenue Drivers

Date of Call: December 9, 2025

Financials Results

• Revenue: $191 million, up 25.5% year-over-year and up 6% sequentially
• EPS: $0.06 per diluted share (non-GAAP), compared to $0.02 per share in the prior year quarter
• Gross Margin: 69.1% non-GAAP gross margin, compared to 70.5% in the prior year quarter
• Operating Margin: 2.7% non-GAAP operating margin (non-GAAP operating income $5 million), compared to negative 1.4% in the prior year quarter

Guidance:

• Q4 FY2026 revenue expected $197.5M–$198.5M (~23% YOY at midpoint)
• Q4 non-GAAP operating income $12M–$13M (implies ~6% operating margin at midpoint)
• Q4 non-GAAP net income $15M–$16M; non-GAAP EPS $0.13–$0.14 (approx. 113M diluted shares)
• FY2026 revenue $730.5M–$731.5M (~23% YOY at midpoint); Decisioning Studio expected to add ~2 pts to FY growth
• FY2026 non-GAAP operating income $26M–$27M (midpoint ~3.5% margin, ~350 bps improvement vs FY2025)
• FY2026 non-GAAP net income $46M–$47M; EPS $0.42–$0.43
• Targeting ~8% non-GAAP operating margin for FY2027; no specific Q4 gross margin provided

Business Commentary:

• Revenue and Customer Growth:
• Braze reported revenue of $191 million for Q3 2026, up 25.5% year-over-year and 6% from the prior quarter.

• The growth was driven by strong customer acquisition and retention efforts, including the addition of 106 customers in Q3 and 317 year-over-year, with a focus on expanding large customer relationships.

• AI Integration and Product Innovation:

• Braze's AI capabilities, such as the AI Decisioning Studio, contributed $4.8 million in revenue in Q3, highlighting the integration of advanced AI solutions into customer engagement strategies.

• The increasing adoption of AI-driven personalization tools, such as the Braze Liquid Assistant and content quality assurance, enhanced customer/journey interaction and personalization across various channels.

• Cross-Channel Engagement and Messaging Growth:

• During Black Friday to Cyber Monday, Braze delivered nearly 60 billion messages, with a 90% increase in SMS and WhatsApp message sends and a 55% increase in content card impressions.

• This growth was driven by the expanding use of premium messaging channels to enhance direct relationships with customers and facilitate more complex campaigns.

• Operational Efficiency and Financial Performance:

• Braze achieved non-GAAP operating income of $5 million, representing a non-GAAP operating margin of 2.7%, and improved non-GAAP gross margin to 69.1%.
• These improvements were driven by disciplined investment in headcount and efficiencies in personnel costs, along with ongoing product innovation and customer retention strategies.
  

  Sentiment Analysis:

  Overall Tone: Positive

  • Management: "strong third quarter results, generating $191 million of revenue, up 25.5% year-over-year"; "improving non-GAAP operating margins by over 400 basis points year-over-year"; guidance raising Q4 and full-year targets and targeting an 8% non-GAAP operating margin in fiscal 2027 — all signaling constructive momentum and confidence.

Q&A:

• Question from Ryan MacWilliams (Wells Fargo Securities, LLC): Bill, why might Canvas be an easier starting point for organizations building new AI use cases compared to the agent console?
  Response: Canvas offers rapid deployment with built-in automation, direct access to first-party data and experimentation/reporting, letting customers prototype and A/B test agent-driven use cases quickly before promoting to production.

• Question from Ryan MacWilliams (Wells Fargo Securities, LLC): Isabelle, can you break down the components driving the improved metrics this quarter and the stronger Q4 guide?
  Response: Sales productivity improvements, efforts to mitigate downsell/dollar churn, and regional/vertical investments improved retention and deal efficiency, enabling better results and a stronger Q4 guide.

• Question from Raimo Lenschow (Barclays): What's driving the growing momentum on legacy platform replacements—AI adoption, end-of-life tech, or other factors?
  Response: A mix: consolidation/capitulation of subscale vendors and legacy stagnation, plus Braze differentiation via scale, R&D and AI innovation, are accelerating enterprise replacement conversations from 'if' to 'when.'

• Question from Raimo Lenschow (Barclays): Isabelle, NRR seems to be stabilizing. Any color on intra-quarter trends and puts/takes this quarter?
  Response: In-quarter organic dollar-based net retention has stabilized slightly above 107% (Q1 a bit below 107%, Q2 a bit above), showing sequential improvement over three quarters.

• Question from Gabriela Borges (Goldman Sachs Group, Inc.): How do you think AI can impact Braze's growth algorithm broadly?
  Response: AI monetization is bifurcated: occasional AI workflow features will be included in-platform, while real-time/always-on LLM invocations will be monetized via a credits framework, creating revenue upside but also cost considerations.

• Question from Gabriela Borges (Goldman Sachs Group, Inc.): Are customers building bespoke agentic stacks adjacent to Braze, and how do you pull that work into Braze over time?
  Response: Customers often run bespoke side-by-side systems, but Braze's flexible APIs and evolving built-in capabilities (e.g., item recommendations, Decisioning Studio) increasingly replace in-house solutions due to better performance and lower total cost of ownership.

• Question from James Wood (TD Cowen): How much customer interest exists in the ChatGPT integration and what does it mean for engagement and monetization?
  Response: Early-stage interest; if native app ecosystems remain open they can become new first-party data channels and messaging surfaces—either way Braze enables brands to preserve direct relationships and monetize performance depending on ecosystem openness.

• Question from James Wood (TD Cowen): Isabelle, is the uptick in new customer adds driven by OfferFit/Decisioning or other factors?
  Response: Not OfferFit yet (longer cycles); drivers are legacy replacement momentum, strong competitive positioning, regional/vertical investments and churn mitigation leading to higher net-new adds.

• Question from Taylor McGinnis (UBS Investment Bank): Q4 guide was stronger—are headwinds easing or is demand improving into Q4 and into calendar 2026?
  Response: Guide is risk-adjusted but reflects strengthening legacy replacement, retention investments, regional/vertical efforts and improved metrics (RPO/CRPO, customer adds), supporting near-term demand normalization.

• Question from Arjun Bhatia (William Blair & Company L.L.C.): How is OfferFit/Decisioning Studio being received, use cases, pipeline and what can it unlock for FY27?
  Response: Integration progressing well; strong pipeline and cross-sell traction across geos and verticals—Decisioning delivers meaningful enterprise uplift (reinforcement learning) but is an enterprise sale with longer cycles; it should enable differentiated performance and future upside.

• Question from Brian Peterson (Raymond James & Associates, Inc.): Has the pipeline mix changed by vertical; any end markets you're particularly excited about for 2026?
  Response: No major rotation; biggest shifts reflect deeper penetration into capital-intensive and regulated verticals (health, finance) as early disruptor proofs enable wins in larger incumbent enterprises.

• Question from Scott Berg (Needham & Company, LLC): What's driving the acceleration in $500k+ customer additions—land motion vs. expansion?
  Response: Strong upsell momentum from customers moving above $500k driven by cross-channel adoption and higher messaging volumes, outpacing downsells and fueling large-customer growth.

• Question from Brett Huff (Stephens Inc.): Have progressive marketing organizations' buying behaviors shifted back toward growth, and are you seeing side-by-side purchases ahead of switching?
  Response: Some normalization: customers are resuming upsells (credits) and investing in premium channels (e.g., SMS/WhatsApp); switching costs still matter, so careful qualification and consultative sales remain important.

• Question from Matthew VanVliet (Cantor Fitzgerald & Co.): Will Decisioning target mid-market with lighter-weight versions or use other products to reach lower tiers?
  Response: Yes—multiple on-ramps exist (agent console, other AI tools) to deliver lighter-weight, faster experiments with a progression to enterprise Decisioning; Braze intends to provide accessible starting points across segments.

• Question from Tyler Radke (Citigroup Inc.): Are you starting to access dedicated AI budgets versus traditional martech budgets?
  Response: Braze sells measurable performance uplift (ROI) rather than just AI features, which unlocks incremental budget beyond martech as customers fund performance-driven initiatives.

• Question from Yun Suk Kim (Loop Capital Markets LLC): Will Braze expand beyond first-party data products into acquisition/third-party data given agentic commerce and potential data residing with chatbots?
  Response: Braze already supports acquisition and identity/third-party integrations and will work with ecosystems as they evolve, but core focus remains helping brands build direct first-party relationships while leveraging integrations where appropriate.

• Question from Patrick Walravens (Citizens JMP Securities, LLC): How are you thinking about additional M&A and readiness for deals after OfferFit?
  Response: OfferFit integration is proceeding well; corp dev is active but highly selective—M&A will target opportunities that advance the product roadmap and TAM, with no specific deals announced.

Contradiction Point 1

AI and Customer Engagement

It involves the company's position on AI adoption and its impact on customer engagement strategies, which are crucial for understanding Braze's strategic direction and product offerings.

How do you think AI can impact the growth algorithm of your business? - Gabriela Borges (Goldman Sachs Group, Inc., Research Division)

2026Q3: We think about AI monetization in two buckets. The first is AI that is generally helping our users with the overall workflow, and the second is AI that is on a repeated basis, on a one at a time in real time, always on function. - Isabelle Winkles(CFO)

How is customer behavior or thinking evolving regarding engagement in the new AI era? - Raimo Lenschow (Barclays Bank PLC, Research Division)

2026Q2: Customer engagement fundamentals remain timeless. AI enhances customer engagement tools for better experience. Braze's platform is well-suited for AI integration, closing the gap between promise and reality. - William Magnuson(CEO)

Contradiction Point 2

Sales Productivity and Churn Management

It reflects differing perspectives on the effectiveness of sales productivity improvements and churn management strategies.

Ryan, could you break down the drivers behind the improvement in key metrics and the stronger-than-historical 4Q guidance? - Isabelle Winkles

2026Q3: We've seen ongoing productivity enhancements within the sales organization and efforts to mitigate downsell and dollar churn, which have really come to fruition. - Isabelle Winkles(CFO)

Can you reconcile the sequential revenue growth, macroeconomic uncertainties, and the factors benefiting Braze, such as strong CRPO growth? - Gabriela Borges (Goldman Sachs)

2026Q1: We do expect churn to continue to decline as we go through the year. It was a bit higher in Q1, but we do expect to see it come down as the rest of the efforts that we've put in place really take effect. - Isabelle Winkles(CFO)

Contradiction Point 3

Investment in OfferFit and Integration Timeline

It involves different statements about the integration timeline and expectations for OfferFit.

How do you view additional M&A opportunities? When might you be prepared to pursue them? What types of targets might interest you? - Patrick Walravens (Citizens JMP Securities, LLC, Research Division)

2026Q3: We have always been very careful about bringing on new saas assets, and we're also very mindful of the structural challenges around integrating those and making sure it doesn't cause a distraction. - William Magnuson(CEO)

When do you expect cross-sell efforts to take hold? - Matt VanVliet (Cantor Fitzgerald & Co.)

2026Q1: The next fiscal year, combined sales teams will sell across Braze's platform and OfferFit. We're leveraging both teams to qualify and cross-sell opportunities quickly with expected integration by next year. - William Magnuson(CEO)

Contradiction Point 4

AI Integration and Product Development Strategy

It highlights differing perspectives on the company's strategy for integrating AI capabilities and developing new products, which can impact investor understanding and expectations.

Could you elaborate on the new ChatGPT integration and how first-party data is being used for personalization in ChatGPT apps? - James Wood (TD Cowen, Research Division)

2026Q3: The ChatGPT integration for native apps allows marketers to ensure that sophisticated customer engagement strategies are enabled in their new ChatGPT apps. - William Magnuson(CEO)

Why acquire an AI-native company as a SaaS business? What limited OfferFit's ability to scale? - Gabriela Borges (Goldman Sachs)

2025Q4: Braze and OfferFit complement each other well due to expertise and existing partnerships. OfferFit has strong ties with Braze customers. - William Magnuson(CEO)

Contradiction Point 5

Revenue Stabilization and Growth Drivers

It involves differing explanations for revenue stabilization and growth drivers, which are crucial for investor assessment of the company's financial performance.

What factors contributed to the improved 4Q performance—past headwinds easing or stronger 3Q performance? - Taylor McGinnis (UBS Investment Bank, Research Division)

2026Q3: We are approaching this with a risk-adjusted position. What you're seeing is some of what I talked about in the last question that was asked where we're seeing continued strength across the legacy replacement cycle and then strengthen our overall competitive position. - Isabelle Winkles(CFO)

What indicators are driving revenue stabilization and reacceleration? - Taylor McGinnis (UBS)

2025Q4: Revenue stabilization and reacceleration are supported by strong new business momentum and better performance of new customer cohorts. - Isabelle Winkles(CFO)