Exponential Data And AI Will Reinforce Global Cloud Dominance

Key Takeaways

• Exceptional growth in AI-driven storage demand and large enterprise deals is set to transform revenue potential and exceed current analyst expectations.
  
• Backblaze's proprietary cost-efficient architecture and strategic integrations position it for expanding margins, strong market share gains, and broader platform monetization.
  
• Intense competition, regulatory compliance costs, security challenges, and over-reliance on SMBs threaten Backblaze's profitability, revenue stability, and ability to achieve long-term growth.

Catalysts

A storage cloud platform, provides businesses and consumers cloud services to store, use, and protect data in the United States and internationally.

• Analyst consensus expects B2 Cloud Storage growth to be strong, but this likely understates the magnitude of the opportunity: with 70% growth in AI customers and a 40-fold increase in data stored by this segment over the past year, B2 could accelerate well beyond 30% growth, potentially transforming the company's overall revenue profile as AI workloads become a majority segment.
  
• While analysts expect upmarket and enterprise expansion to drive incremental ARR, the true impact may be far greater-Backblaze now consistently secures seven-figure and six-figure deals, with the pipeline of such opportunities doubling year-over-year and historic deal size multiples indicating a step-function increase in average revenue per user and lifetime value, outperforming consensus expectations for top-line expansion.
  
• Backblaze's industry-leading cost efficiency, enabled by proprietary hardware and cloud architecture as validated by independent analyst reports (up to three times more cost efficient than peers), is positioned to deliver sustained gross margin improvements as scale increases, creating significant upside for both net margins and long-term earnings power as market share grows.
  
• The explosive proliferation of globally generated data-especially from AI, video, IoT, and digitization-combined with rising cybersecurity threats and regulatory requirements, will further widen the gap between Backblaze's frictionless, predictable-priced services and incumbent options, driving outsized customer acquisition, retention, and embedded pricing power in the coming years.
  
• Channel and alliance partner integrations, particularly with major GPU/cloud compute, SaaS, and next-gen AI infrastructure providers, will allow Backblaze to serve as the storage backbone across hybrid and multi-cloud architectures; this platform positioning could unlock substantial upside optionality in high-value markets, dramatically expanding the long-term addressable market and monetization streams beyond current forecasts.

Backblaze Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Backblaze compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Backblaze's revenue will grow by 15.3% annually over the next 3 years.
• Even the bullish analysts are not forecasting that Backblaze will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Backblaze's profit margin will increase from -31.7% to the average US IT industry of 7.4% in 3 years.
• If Backblaze's profit margin were to converge on the industry average, you could expect earnings to reach $15.5 million (and earnings per share of $0.23) by about August 2028, up from $-43.6 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 89.6x on those 2028 earnings, up from -9.0x today. This future PE is greater than the current PE for the US IT industry at 28.8x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.27%, as per the Simply Wall St company report.

Backblaze Future Earnings Per Share Growth

Risks

• Rapid innovation and aggressive pricing from the largest hyperscale cloud providers present an ongoing risk of market share erosion and margin compression for Backblaze as it seeks to compete upmarket, potentially damaging long-term revenue growth and net margins.
  
• Compliance with increasing global data privacy and residency regulations may force Backblaze to commit significant capital to stay compliant across multiple jurisdictions, raising operating costs and negatively impacting future earnings and operating leverage.
  
• Growing cybersecurity threats and heightened customer expectations for advanced security could disadvantage Backblaze if it is perceived as having fewer resources or a less robust security platform compared to hyperscalers, potentially constraining customer retention and limiting revenue expansion.
  
• Sustained reliance on low-cost differentiation in an increasingly commoditized market exposes Backblaze to potential pricing wars and lower margins, particularly as multi-petabyte customers and large enterprises seek scale and value, thereby putting pressure on profitability and hindering earnings growth.
  
• Heavy concentration in the SMB segment, coupled with relatively limited resources for innovation and infrastructure scale-up compared to industry leaders, leaves Backblaze vulnerable to economic downturns, customer churn, and slower progress on product differentiation, increasing revenue volatility and limiting its ability to drive durable long-term growth.

Valuation

• The assumed bullish price target for Backblaze is $15.9, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Backblaze's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $15.9, and the most bearish reporting a price target of just $7.0.
  
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $210.5 million, earnings will come to $15.5 million, and it would be trading on a PE ratio of 89.6x, assuming you use a discount rate of 9.3%.
  
• Given the current share price of $7.14, the bullish analyst price target of $15.9 is 55.1% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.