BLZE: beat and raise, stock cheaper versus a month ago
Valuation still discounts further growth
I wrote my Backblaze long explanation on July 19 when the company had an enterprise value of ~$270m (cash and debt are basically a wash here so this is basically the market cap). Fast forward to today and the company has about the same EV and the same stock price despite after the bell yesterday beating and raising. The result is the company now trades cheaper even with a 20%+ move up from yesterday’s price:
Some of the valuation change can definitely be blamed on the market sliding over the last week and tech multiples contracting. That said, other names (ex. Shopify) have been rewarded for beating and raising in this tough environment. BLZE is the rare company to not only beat and raise but suggest they’re immune from macro issues:
I buy this explanation as 1) BLZE helps customers save hundreds of thousands of dollars compared to the popular ways of storing data (AWS, GCP), 2) BLZE has AI tailwinds the rest of the market isn’t getting and 3) data storage and backup is a must have.
Check out two customer wins that evidence these trends - a second NFL team (in Q1 they got their first / they note this is a “championship team” - maybe the Patriots?) and a 3D landscape rendering company:
On AI, CEO Gleb Budman again noted they’re benefitting from AI use cases and this time noted they don’t have the same capex needs as other companies, because data storage is necessary for leveraging AI but doesn’t require GPUs:
There’s a lot going on in this quote, but my highlights are:
BLZE is benefitting from companies having multiple GPU providers because data then needs to be accessed in multiple places. AWS often has constraints on how you can access S3 data and egress fees associated with pulling out that data. BLZE has far less access friction and no egress fees
BLZE is cheaper than all the other clouds and those savings are realized quickly (my first post explains a bit of the why, but the short story is 1) BLZE uses different infrastructure to store data and 2) BLZE does not have the same redundancy / reliability as AWS)
BLZE benefits from AI without having to buy GPUs. Its capex is growing as if the AI wave never happened. As a result, it gets the tailwinds of AI without the headwinds of AI related capex
Some other quarter highlights that give me high conviction the business fundamentals are improving before our eyes:
Gross profit margins of 55% versus 49% in Q2 23. Some of this is definitely the price increase on Computer Backup but also higher data center utilization (per the company: “This improvement was driven by the price increase and data center optimization”)
B2 Cloud Storage NRR up to 126% compared to 121% in Q2 2023. The enterprise business is now almost exactly half of total revenue (this quarter B2 was $15.4m versus $15.9 on backup)
The company released a feature called Live Read that is $15/terabyte and via Budman a “higher margin offering”. Live Read allows you to read data while its being uploaded to Backblaze’s cloud. The feature was from popular customer request and the example use case they cite feels high value add:
In June, we launched B2 Live Read. This patent-pending cloud service lets customers access files while they're still being uploaded. Here's why this is really valuable for customers. Take, for example, a news reporter working in the field. If they want their in-house editors to work on the footage they're recording, like adding graphics or cutting something, the editors either need to be on site to get direct access to the camera feed so they can edit it live, or they need to pay for some pretty expensive and complicated solutions to enable remote editing. With Live Read, all of that goes away. The footage can start to be uploaded to Backblaze, and producers anywhere in the world can start working with it before the event and upload is complete. No waiting, no complicated hardware or big price tags, no on-site producers necessary.
BLZE this quarter I think showed continued operating leverage, more strength in B2 Cloud and continued evidence they have AI and cost savings tailwinds. Despite all that, the multiple on the stock remains basically unchanged from a month ago. I am adding more here.