Backblaze, Inc. (BLZE) is a leading cloud storage and data backup solutions provider, offering a modern alternative to traditional cloud services. Headquartered in San Mateo, California, the company has carved out a unique niche by delivering cost-effective and easy-to-use cloud storage and backup services to businesses and individuals alike.
Business Overview and History Backblaze was incorporated in the state of Delaware on April 20, 2007, with the goal of making cloud storage and backup accessible to the masses. The company provides cloud services through purpose-built, web-scale software infrastructure built on commodity hardware, allowing it to pass on significant cost savings to its customers. In its early years, Backblaze focused on building its core cloud storage and backup offerings, attracting customers through its blog and transparent culture.
Over the years, Backblaze has grown its customer base to over 500,000 across more than 175 countries, storing over 3 billion gigabytes of data. The company’s B2 Cloud Storage and Computer Backup offerings have accounted for substantially all of its revenue to date, with the B2 solution serving as the foundation for the company’s growth strategy. Backblaze has invested in innovation, showcasing its technology platform and related features.
Despite facing challenges such as a data center provider filing for bankruptcy in 2022 and industry-wide component shortages and supply chain issues, Backblaze has continued to scale its business. The company has built a community of millions of readers and brand advocates through its transparent culture and content-driven approach.
Financial Performance Backblaze’s financial performance has been characterized by strong revenue growth and improving operational efficiency. In the fiscal year ended December 31, 2023, the company reported total revenue of $102.02 million, up from $85.16 million in 2022 and $67.48 million in 2021, representing a compound annual growth rate (CAGR) of 23.3% over the three-year period.
Despite the company’s rapid growth, Backblaze has not yet achieved profitability, reporting a net loss of $59.71 million in 2023, $51.40 million in 2022, and $21.70 million in 2021. The company’s focus on investing in infrastructure, research and development, and sales and marketing to drive future growth has resulted in these ongoing losses.
However, Backblaze has made strides in improving its operational efficiency, as evidenced by the increase in its adjusted EBITDA margin from -3% in 2023 to 9% in the second quarter of 2024. The company’s management has set a goal of achieving an adjusted EBITDA margin of approximately 20% by the fourth quarter of 2025, as it continues to prioritize both top-line growth and cost optimization.
In terms of cash flow, Backblaze reported an operating cash flow of -$7.35 million and a free cash flow of -$27.58 million for the fiscal year 2023. The company’s liquidity position as of September 30, 2024, includes $25.60 million in cash, investments, and restricted cash, with an additional $15.30 million available through a credit line. The company’s debt-to-equity ratio stands at 0.13, while its current and quick ratios are both 0.54, indicating potential short-term liquidity challenges.
Quarterly Performance and Guidance In the third quarter of 2024, Backblaze reported revenue of $32.59 million, representing a 29% year-over-year increase. The company’s B2 Cloud Storage revenue grew by 39% to $16.18 million, while its Computer Backup revenue increased by 20% to $16.41 million. This growth in Computer Backup exceeded expectations due to better-than-expected retention.
Backblaze’s net revenue retention rate (NRR) for the quarter was 118%, compared to 108% in the same period last year, reflecting the growing adoption and stickiness of its cloud solutions among customers. The company’s gross customer retention rate remained strong at 90% in the third quarter.
The third quarter also saw Backblaze achieve its highest adjusted EBITDA margin of 12% since going public. The company’s net loss for the quarter was $12.75 million, while operating cash flow was positive at $4.63 million and free cash flow reached $1.03 million.
For the fourth quarter of 2024, Backblaze is guiding for total revenue in the range of $33.5 million to $33.9 million. The company expects its adjusted EBITDA margin for the quarter to be between 12% and 14%, excluding one-time restructuring costs. For the full year 2024, Backblaze anticipates total revenue of $127 million to $128 million and an adjusted EBITDA margin of 9% to 11%.
Looking ahead to 2025, Backblaze has set a goal of exiting the fourth quarter with an adjusted EBITDA margin of approximately 20%, which would be about double where they plan to finish 2024. The company also expects to achieve adjusted free cash flow positivity by the fourth quarter of 2025. This aligns with the company’s strategic focus on balancing growth and profitability to create long-term value for its shareholders. Backblaze’s long-term objective is to become a “Rule of 40” company, based on revenue growth and adjusted free cash flow margin.
Product Segments Backblaze operates two main product segments: B2 Cloud Storage and Computer Backup, which together account for over 98% of the company’s total revenue.
The B2 Cloud Storage offering provides a platform for customers to store data, developers to build applications, and partners to expand their use cases. Customers can scale their data storage up or down as needed, using either a pay-as-you-go model or a capacity-based plan called B2 Reserve. In the third quarter of 2024, B2 Cloud Storage revenue reached $16.18 million, representing a 39% year-over-year increase. This growth was driven by increased storage usage from existing customers and the price increase implemented in October 2023. The net revenue retention rate for B2 Cloud Storage was an impressive 128% as of September 30, 2024.
The Computer Backup segment offers a cloud backup service that automatically backs up data from laptops and desktops for businesses and individuals. This service features a primarily flat-rate pricing structure, allowing customers to back up virtually unlimited amounts of data. In the third quarter of 2024, Computer Backup revenue grew to $16.41 million, a 20% year-over-year increase. This growth was primarily attributed to the October 2023 price increase, which offset a decrease in customer numbers and a decline in the average amount of data backed up per customer. The net revenue retention rate for Computer Backup stood at 109% as of September 30, 2024.
Competitive Landscape and Growth Opportunities Backblaze operates in a highly competitive cloud storage market, with larger players such as Amazon Web Services (AWS), Google Cloud Platform, and Microsoft Azure. However, the company has carved out a unique position by offering a cost-effective and easy-to-use alternative to the traditional cloud giants.
The company’s focus on B2 Cloud Storage and Computer Backup has allowed it to build a loyal customer base and develop a strong brand identity. Backblaze’s recent partnerships, such as the one with Opti9 in Canada, further expand its reach and addressable market.
Looking ahead, Backblaze sees significant growth opportunities in the rapidly expanding cloud storage market, which is expected to reach $55 billion in size by 2025, according to industry estimates. The global cloud storage market is projected to grow at a compound annual growth rate (CAGR) of 19% from 2023 to 2028, presenting substantial opportunities for Backblaze to expand its market share. The company is well-positioned to capitalize on the increasing demand for cost-effective and user-friendly cloud solutions, particularly among small and medium-sized businesses.
While Backblaze primarily focuses on the U.S. market, it has been expanding its international presence. In the nine months ended September 30, 2024, approximately 27% of the company’s revenue originated from outside the United States, indicating potential for further global expansion.
Risks and Challenges While Backblaze has demonstrated strong growth potential, the company faces several risks and challenges that investors should consider. These include the highly competitive nature of the cloud storage market, the need to continuously invest in infrastructure and innovation to maintain its competitive edge, and the challenge of achieving profitability while funding its growth initiatives.
Additionally, Backblaze has identified material weaknesses in its internal controls over financial reporting, which could expose the company to potential accounting errors or other financial reporting issues. The company has dedicated significant resources to remediating these weaknesses, but the process may take time to fully resolve.
Conclusion Backblaze’s innovative cloud storage solutions and its focus on cost-effectiveness and customer-centricity have positioned the company as a disruptive force in the rapidly evolving cloud storage market. With a growing customer base, strong revenue growth, and a strategic focus on profitability, Backblaze appears well-positioned to capitalize on the expanding demand for cloud-based storage and backup services.
The company’s recent financial performance, including the 29% year-over-year revenue growth in the third quarter of 2024 and the improvement in adjusted EBITDA margin, demonstrates its ability to execute on its growth strategy while making progress towards profitability. Backblaze’s guidance for the fourth quarter of 2024 and its goals for 2025, including achieving an adjusted EBITDA margin of approximately 20% and adjusted free cash flow positivity, provide a clear roadmap for the company’s financial trajectory.
However, the company’s ongoing challenges, including the need to address material weaknesses in its internal controls and navigate a highly competitive market, warrant close attention from investors. As Backblaze continues to navigate the competitive landscape and execute on its growth strategy, its ability to balance expansion and profitability will be a key factor in determining the company’s long-term success. The company’s progress towards its “Rule of 40” objective and its ability to capitalize on the growing global cloud storage market will be critical metrics for investors to monitor in the coming years.
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