Every investor should know the term CEP, or customer engagement platform, because it is central to businesses' use of AI. CEPs provide software services to connect and communicate with customers, which is critical to brand building, consumer loyalty, and long-term success. However, connecting and communicating with customers is an increasingly difficult challenge due to the variety of channels consumers use to get their information.
With AI's aid, CEPs unify omnichannel networks and personalize and automate engagement to streamline operations and proactively enhance experiences.
Valued at roughly $25 billion globally at the end of 2024, the CEP industry is expected to grow at a low-teen CAGR for the next five years and double at the low-end range. Growth will be driven by increased digitization by consumers and businesses, accelerating adoption of AI automation, and penetration of services.
Companies like Twilio (NYSE: TWLO) and Braze (NASDAQ: BRZE) are well-positioned to capture the growth and likely to lead their peers in 2025.
Twilio Plunges Into Buying Opportunity
[content-module:Forecast|NYSE: TWLO]Twilio’s share price plunged following the FQ4 2024 earnings release, deepening an already incredible value. The price plunge is due to slowing growth and tepid guidance, but it discounts the company’s improvement in operational quality and strategy execution. While guidance was tepid, the weakness is relative only to analysts' consensus figures and does not reflect the impact on shareholders.
Internal metrics such as the client count and net retention rate reveal accelerating business and improving leverage likely to be seen in upcoming quarters. The bottom line is that this company is growing at a low-double-digit pace and is expected to sustain a high-single-digit pace in 2025, potentially a low guide given internal metrics and the outlook for CEP services growth.
The company’s earnings, cash flow, and free cash flow are critical to the stock price outlook. Twilio is profitable and has a robust FCF margin, which allows aggressive share repurchases while maintaining a fortress balance sheet. At the end of FQ3 2024, the balance sheet highlights reflect a one-time impairment, including reduced equity, but no red flags are raised.
The highlights also include a low leverage ratio, about 0.1X equity, and a 15% reduction in the share count, with aggressive buybacks expected in 2025. The company’s board recently authorized another $2 billion in buybacks, equal to roughly 11.5% of the market cap with shares near $115.
The analyst's response contradicts the TWLO price action following the release. The analyst activity includes numerous price target increases and upgrades, lifting the sentiment higher in the Moderate Buy range and the price target by 20%. The consensus at the end of February 2025 is for a 15% rebound, with a high likelihood the market will exceed consensus and move into the high-end range. The high-end range is near $180, about 60% above critical support.
Braze: Growth Slows, But Margins are Widening
[content-module:Forecast|NASDAQ: BRZE]Braze is a smaller CEP operator whose growth is also slowing. However, Braze’s growth is slowing into the low 20% range, and its margin is widening. Highlights from 2024 include a shift to profitability; the outlook for 2025 is for earnings to more than double.
Valuation is among the risks for BRZE investors. The stock trades at more than 350X its 2025 forecasts, pricing significant earnings growth. The company’s P/E ratio falls 30X relative to the 2030 estimates, and forecasts are likely low. A takeover is among the opportunities, with this stock labeled a takeover target in a 2024 research report.
Buyers could include Twilio, but Salesforce.com is a more likely candidate. Analysts rate Braze as a Buy with a 40% upside potential at the consensus estimate.
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