I haven’t looked at a pitch from Cabot recently, so when I saw a new pitch from that publisher, starting a couple weeks ago, this headline caught my eye:

“How to Own the Surprising Artificial Intelligence at the Center of DOZENS of Global Corporations”

The ad is a pitch for Cabot Small-Cap Confidential ($1,997/yr), which is written by Tyler Laundon and generally focused on small growth stocks. Here’s a little more of what he says in the pitch:

“For less than $50, you can own a stake in a powerful AI that’s already VITAL to corporations you and billions of other people rely on daily.

“Would you be surprised to learn that Burger King, GrubHub, Pizza Hut, Tim Hortons, KFC, Dairy Queen are already relying on a single company’s powerful AI to transform and grow their businesses?

“What if I added HBO, US Soccer, NBC, Overstock, Uber, NASCAR and Draft Kings to the mix of companies leveraging this single AI?

“And Rosetta Stone, the American Cancer Society, iHeart Radio, Fiverr, Hinge, Lumosity, Sephora, and the list goes on.

“For all the talk of AI, no one seems to know that one single AI is already running the show for dozens of corporations worldwide.”

I imagine we’ll end up having to say that “running the show” is a bit of an exaggeration for whatever this small company’s product does… but still, those are big customers, so maybe there’s something worth digging into.

What else does he say about this AI stock?

“You can own this AI for yourself starting for less than $50….

“I believe it’s likely we’ll see over 30% annual growth in the value of this AI for years to come…

“But no one is talking about the powerful AI I’ve discovered – mostly because it’s not the kind of obvious AI application people are familiar with.

“It’s behind the scenes. It’s not something you or I can log onto and mess around with (like ChatGPT)…

“It’s an enterprise-scale AI and it seems to be finding its way into everything.”

And he says that he made the recommendation before the market opened on August 3, so it’s pretty recent. What can the Thinkolator tell us?

I had to haul it out of the garage for this one, and give it a few swift kicks… and it took longer than usual to spit out an answer… but an answer did come, and it has to be less than 100% perfect, given the limited clues, but the Thinkolator’s most likely answer is Braze (BRZE), which sells a cloud-based “customer engagement platform.” This is how they describe themselves:

“Braze is a leading comprehensive customer engagement platform that powers customer-centric interactions between consumers and brands. Our platform empowers brands to listen to their customers better, understand them more deeply and act on that understanding in a way that is human and personal. Using our platform, brands ingest and process customer data in real time, orchestrate and optimize contextually relevant, cross-channel marketing campaigns and continuously evolve their customer engagement strategies. 1,866 customers around the world trust Braze with their most valuable assets: their customer relationships.”

I don’t know if “AI” is really a core part of what Braze is offering right now, but they certainly are in an area where a lot of these chat-based customer engagement modules are exploring ways to get rid of call center employees and improve engagement and marketing. There are other companies in similar businesses who more robustly claim an “AI” core to their businesses, like the more customer service-focused Sprinklr (CXM), which is a similar size and is actually probably on a bit more of a steady earnings growth trajectory than Braze (well, adjusted earnings, anyway), but the specific customers dropped by Laundon as hints are a much better match for Braze. You can see the customer service “stories” for those engagements with folks like HBO and KFC and USA Soccer and Burger King on their website. The tools are generally used for marketing — so KFC might use loyalty marketing to increase conversions on their ad campaigns, or NBC might use it to reduce churn on their streaming services, and there is at least some “AI” happening… for example, one of their case studies is headlined, “Pizza hut adds key channels and drives a 21% increase in revenue with machine learning,” but a lot of what the product seems to do is much simpler us of algorithms and putting people on various marketing “paths” to improve results and make customers like the brand more.

And as a SaaS software business, the metrics look pretty good — they have been growing their customer base and their monthly active users, and they most recently reported 31% revenue growth and 122% dollar-based net retention. Those numbers would have had them trading at 25X sales back in 2021, and they actually had pretty good timing in going public in November of that year, which gave them $400 million in cash to work with as they sold shares at a high valuation… but sadly, the stock has done very poorly for the IPO investors as valuations have come down, and they now trade at about 10X sales. And they’re nowhere near being profitable, but they’re still holding on to much of that cash, since they used stock-based compensation to cover about half of their operating losses. It’s a very clean story, SaaS-wise, since 95% of their revenue comes from subscriptions and the retention is good, though the market is certainly not as lusty about not-yet-profitable SaaS stories as it was 18 months ago.

It also looks like the space is probably pretty competitive. I don’t use any of these tools, and sometimes the fine distinctions are really critical for particular customers so Braze may indeed have a fantastic edge… but the big player in this kind of SaaS cross-channel marketing is probably Hubspot (HUBS), which is a $25 billion company and is still valued at a pretty robust 12X sales (they’ve been profitable on an adjusted basis for a while, but are certainly expensive at 100X adjusted earnings), and there are much more complex products available within the Salesforce (CRM) marketing cloud, but there are also tons of small or private competitors when it comes to this kind of marketing software, including firms like Bloomreach, Iterable, MoEngage and OneSignal. Who knows, maybe Braze will take advantage of the fact that they went public at a pretty rich valuation and use some of their cash to acquire some of the other small competitors to build a bigger presence… or maybe BRZE will be bought by Hubspot to improve their text-messaging integration, or the market will turn rosy in six months and a dozen hard-charging competitors will go public and take some of the shine away from BRZE.

Well, I guess the only thing I made clear with that paragraph, is that I don’t know what’s going on in this little sector of the marketing software world, and I don’t know who’s going to win. But Braze, at least, has a decent financial platform to build on, and a lot of very large customers who can help them grow into something meaningful if Braze’s platform keeps improving their marketing results and earns their continuing subscription.

The current expectation, among the few analysts who follow this small company, is that they’ll keep growing their revenue at about 20% per year, and will keep issuing tons of shares to cover costs, and therefore their adjusted earnings will turn positive sometime in late 2025 or 2026. In their short life as a public company, they’ve pretty consistently beaten the analyst forecasts and said pretty positive things about their outlook, which helped the stock to pop a bit following the last two earnings reports (almost 10% back in March, and closer to 20% in June)… and they use a non-standard fiscal year, so the next quarterly update from them will come on September 7. It’s not out of line with what a lot of other $2-20 billion SaaS stories from 2021 look these days, so if you want to particularly highlight Braze you’ll probably have to trust Tyler Laundon’s judgement about this one… or learn enough about that industry to be confident that BRZE has good potential to be a survivor. I don’t feel like I understand the company well enough to choose them over the many similarly-valued SaaS stories out there… but they are doing at least some things right. And if Laundon recommended this stock back on August 3, then it’s still essentially unchanged — it closed at $42.57 that day, and it’s within a couple percent of that level now.

So, over to you — think Braze is worth some more research? Have any great insights into the marketing software space that makes you greedy or fearful when it comes to their product? Or, perhaps, a better match for that list of customers that the Thinkolator might have missed? Please let us know with a comment below. Thanks for reading!