Backblaze CFO says restructuring should lift its stock out of the doldrums

Backblaze Inc., a provider of cloud storage and services, said today that its fourth-quarter revenue rose 18% year-over-year, to $33.8 million, on strong growth in its cloud storage business, and it expects revenue growth to accelerate through the rest of this year.

The quarterly net loss of $3 million narrowed from $5.5 million a year earlier. Full-year revenue of $127.6 million rose 25% year-over-year, and the full-year net loss of $17.5 million improved from a net loss of $30.5 million in 2023.

The 17-year-old company has been mired in a narrow trading range since shortly after its initial public offering in November 2021, but revenue from artificial intelligence startups is “starting to meaningfully contribute to the business,” with three AI companies now in its top 10 customers, said Chief Financial Officer Marc Suidan, who joined the company six months ago after 20 years at leading consulting firms and startups.

Suidan said Backblaze’s turnaround is nearly complete and that results should show over the next six months. The stock edged up about 3.5% after hours after dropping 10% on a down day on the Nasdaq.

“Historically, this has been a company that’s burned cash, but this will be our fifth quarter of EBITDA profitability and every quarter that margin has increased,” he said in an exclusive interview with SiliconANGLE. Earnings before interest, taxes, depreciation and amortization is a metric that evaluates core operational profitability.

A secondary stock offering in November raised $30 million and a restructuring cut costs to reduce cash burn. Suidan said an overhaul of the sales operation and a new focus on growth markets should see Backblaze reach a 30% growth rate by the end of the year. “We’ve hit the bottom and we’re back in growth mode because we’re doing a go-to-market transformation,” he said.

Cloud storage revenue climbed 36% in 2024, to $63.3 million, with demand from artificial intelligence startups catalyzing that business, he said. “There’s a massive amount of startups emerging in the marketplace running their own large language models and developing their own solutions,” he said. “They do not want to work with the hyperscalers, because the hyperscalers are their competition. They need an independent storage provider that’s not restricting them, and that’s what they love about us.”

Rule of 40

Backblaze’s financial targets under its new CFO are guided by the “Rule of 40,” a financial metric used by software-as-a-service companies that equates business health to a combined revenue growth rate and profit margin of at least 40%. Negative margins knocked Backblaze’s most recent quarterly rating to 12 on the 40-point scale, but increased cost discipline and stronger growth should land the company at a 30 rating by the end of this year, Suidan said.

“We should exit this year at somewhere around $100 million in annual run rate,” he said. “That indicates a stock price that would double or triple from where it is today. That’s a nice opportunity.”

Backblaze prices its cloud storage up to 80% less than the big cloud providers and claims better performance and resiliency. “The way we manage data across our platform of more than 300,000 drives with incredible durability of ‘11 nines’ uses a unique software layer and intelligence that gives us competitive advantage,” he said. “It’s been 17 years in the making.”

Suidan said if Backblaze can hit its revenue targets in the first fiscal quarter to reach consecutive quarter of records sales booking, it will have completed in six months the kind of transition that usually takes companies at least 18 month to complete.

“We’re seeing everything we need to see at this stage to give us the confidence that we’re heading the right direction,” he said. The slow-growth problems were caused by sales execution, not product weaknesses.

“You wouldn’t see these kinds of improvements so clearly if it’s a product issue because our win rate is really high,” he said. “By mid-2025 we should be in full execution mode.”

Photo: Unsplash

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