BRZE — Q2 2026 Financial Report Analysis

Revenue up 26% and the loss shrinks, but the improvement comes mostly from lower overhead, not from better gross margins

Braze sells software that companies use to send their customers marketing messages: push notifications, emails, SMS, WhatsApp and in-app messages, timed and personalized by the software. In the quarter ended July 31, 2026, revenue rose 26.2% to $227.2 million. The GAAP operating loss (the loss from running the business, before interest and tax, under standard accounting rules) more than halved, from $38.8 million to $18.1 million. Braze also beat its own forecast from three months earlier by about $7 million in revenue and raised its full-year outlook.

A note on the calendar: Braze's fiscal year ends January 31, so the company calls this quarter "fiscal second quarter 2027". It covers May, June and July 2026, which is why this site lists it as Q2 2026. "Last year" in this report means the three months to July 31, 2025.

At a glance

• $227.2 million revenue, up 26.2%. That is about $7 million above the top of the $219.5 to $220.5 million range Braze gave in May. Existing customers spending more accounted for 55.3% of the increase and new customers for 44.7%.
• GAAP operating margin of -8.0%, up from -21.5%. Braze still loses money under standard accounting, but the loss is shrinking quickly. Most of the improvement came from administrative costs falling and sales and R&D spending growing more slowly than revenue, not from the core service becoming cheaper to run.
• $24.2 million cash from operations against an $18.3 million net loss. The gap comes mainly from two items: $35.7 million of stock-based pay, which is a real cost but is paid in shares rather than cash, and customers paying upfront for annual contracts.

The quarter in figures

Two of these metrics need a short explanation. Dollar-based net retention compares what last year's customers pay today with what they paid a year ago, leaving out new customers. At 110%, the existing customer base as a group is spending 10% more than a year ago, after subtracting customers that left or cut back. Remaining performance obligations (RPO) is revenue from signed contracts that Braze has not yet recognized: work customers have committed to pay for but that has not been delivered yet. RPO due within the next 12 months was $691.1 million, up 23.8% from $558.2 million a year earlier.

Where the growth came from

The 10-Q says existing customers drove 55.3% of the $47.1 million revenue increase and new customers drove 44.7%. Customer count rose 15.2%. The number of large customers, those paying at least $500,000 a year, rose 28.0%, to 361. Large customers also expanded faster than the average customer: their net retention was 112%, against 110% for all customers. Revenue outside the US was $101.7 million, up 24.9%. US revenue was $125.6 million, up 27.2%. International revenue was about 45% of the total, the same share as a year ago.

Growth slowed compared with the first quarter. On the six-month figures, Q1 revenue was about $211.0 million, up roughly 30% from about $162.1 million, while Q2 grew 26.2%. Part of this is the acquisition calendar. Braze bought OfferFit, an AI "decisioning" company, on June 2, 2025, for an adjusted $303.2 million in cash and stock. Last year's Q1 contained no OfferFit revenue. Last year's Q2 contained about two months of it. So Q2 is close to a like-for-like comparison and Q1 was not. Braze does not report OfferFit's revenue separately in the 10-Q, so the exact size of the acquisition's contribution cannot be calculated from the filing.

What the headline numbers hide

The GAAP loss and the "adjusted" profit are $40 million apart. Braze reports non-GAAP operating income of $22.0 million. This is its preferred profit measure, and it leaves out certain costs. The GAAP figure, which includes everything, is an $18.1 million loss. Almost all of the $40.1 million gap is stock-based compensation: $35.7 million, or 15.7% of revenue, paid to employees in shares rather than cash. It does not use up cash, but it gives existing shareholders a smaller slice of the company. Smaller items make up the rest: $2.9 million of amortization of intangible assets acquired with OfferFit, $0.8 million of employer payroll taxes on stock awards, a $0.6 million donation of shares to charity, and $0.1 million of acquisition costs. One encouraging detail: stock-based pay fell from $39.5 million a year earlier. The 10-Q links the drop in administrative costs partly to "the completed vesting of legacy stock option awards". That makes the improvement in GAAP margin partly a one-time drop rather than a recurring saving.

The underlying business is getting slightly more expensive to run. Cost of revenue rose 29.5%, faster than revenue's 26.2%, so GAAP gross margin (the share of revenue left after the direct cost of delivering the service) slipped from 67.7% to 66.8%. The filing names the causes: a $7.4 million increase in "third-party messaging fees associated with growth in premium messaging channels", meaning fees paid to carriers and platforms to deliver channels like SMS and WhatsApp; $5.2 million more in hosting and infrastructure; and staff costs and amortization from the acquired OfferFit team and technology. On the six-month figures the margin drop is larger: 68.1% to 66.3%. All of the margin improvement came from operating expenses growing more slowly than revenue. Sales and marketing grew 12.4%, R&D 9.8%, and administrative costs fell 13.5%.

Professional services more than doubled, and the filing doesn't say why. Revenue from setup, training and consulting rose from $8.3 million to $19.6 million and now makes up 8.6% of revenue, up from 4.6%. Subscription revenue, the recurring core of the business, grew 20.9%. That is slower than the 26.2% headline figure. The 10-Q does not explain the jump in services. Services revenue usually earns lower margins and recurs less reliably than subscriptions, so readers should keep the 20.9% subscription growth figure in mind alongside the headline.

The net loss improved less than the operating loss because of tax. The pre-tax loss shrank by $18.9 million, from $34.8 million to $15.8 million. Last year's Q2, however, included a $7.0 million tax benefit: the 10-Q ties it to releasing a "valuation allowance due to the acquisition of OfferFit", an accounting reserve against tax assets that the deal made usable. This year Braze recorded a $2.5 million tax charge. That swing of about $9.5 million is why the net loss shrank by only $9.0 million, much less than the improvement in operations.

The cash flow is real, and it comes partly from customers paying in advance. Over the first six months, operating cash flow was $52.3 million against a $43.8 million net loss. The bridge is $71.5 million of stock-based pay that cost no cash, plus a $42.5 million increase in deferred revenue (customers billed for annual contracts in advance), minus $31.3 million of sales commissions paid upfront and capitalized. Receivables fell from $122.4 million in January to $112.5 million, so the cash is not being flattered by unpaid bills piling up. Free cash flow (operating cash flow minus spending on equipment and capitalized software) was $21.7 million in Q2, a 9.6% margin.

The buyback offset only part of the dilution. Braze spent $50.0 million on an accelerated share repurchase announced in March 2026, taking initial delivery of 1,716,002 shares. Shares outstanding still rose from 112.8 million in January to 113.1 million, because new employee stock awards outweighed the shares bought back. Weighted average shares were 4.2% higher than a year ago (111.3 million against 106.8 million), partly because of shares issued to pay for OfferFit. That is also why non-GAAP EPS rose 26.7% while non-GAAP net income rose 25.7%. The two are close, so the per-share figure is not being flattered by a shrinking share count.

Takeaway: Braze's swing from a 21.5% operating loss margin to 8.0% came from overhead, not from the product getting cheaper to run. Gross margin fell 0.9 points as carrier fees for SMS and WhatsApp-style messages grew faster than revenue. Subscription revenue, the recurring part of the business, grew 20.9%, slower than the 26.2% headline. The quarter is better than last year's, but the next stretch of margin gains depends on keeping sales and staff costs growing more slowly than revenue.

Guidance and what to watch

Braze raised its full-year outlook (fiscal year ending January 31, 2027) compared with the guidance it gave in May:

The revenue raise ($14.5 million at the midpoint) is about twice the size of the Q2 beat over guidance, so management is assuming part of the outperformance carries into the second half. The profit guidance moved less. The full-year non-GAAP operating income midpoint rose by $4.0 million, and the Q3 guide of $16 to $17 million implies a non-GAAP operating margin of about 7%, down from 9.7% in Q2. Braze's Forge customer conference was scheduled for September 28 to 30, inside Q3, though the company does not say whether that explains the lower margin guide. At the midpoints, the guidance implies about $244 million of revenue in Q4 (full-year guidance minus first-half revenue and the Q3 guide).

Things to watch in the next report:

• Gross margin. If messaging fees keep growing faster than revenue, it will keep slipping. It was lower than a year earlier in both the quarter and the first half.
• Subscription revenue growth versus headline growth. If the services surge fades, headline growth will converge toward the roughly 21% subscription growth rate.
• Net retention. At 110% it has risen from 108% a year ago. A further rise would show existing customers expanding, which is the cheaper kind of growth.
• GAAP operating loss. With legacy option vesting finished, stock-based pay should be lower. The next quarter will show whether the GAAP loss keeps narrowing without that one-time help.

Source: Braze, Inc. Form 10-Q for the quarter ended July 31, 2026 (filed September 9, 2026), and the fiscal Q2 2027 earnings release (Exhibit 99.1 to Form 8-K, September 8, 2026) for guidance. Prior guidance from the fiscal Q1 2027 earnings release (May 2026).