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Backblaze ($BLZE) is a small and low profile SaaS firm. It offers cloud storage for businesses and computer backup services. The company was founded in 2007 and has raised less than $3 million in funding so far. Instead of burning investor money, BLZE has focused on organic methods to grow such as blogging and word of mouth.

Its blog attracted more than 3 million readers in 2020 alone. Some of the readers start free trials and become paid subscribers. Over 80% of revenue in 2020 came from self-serve customers. 

BLZE has a straightforwards business model. It charges subscriptions for personal or business computer backups, or subscriptions on a per-usage basis for its cloud storage service. Amazon’s cloud division AWS offers a competing solution but Backblaze’s service is up to 80% cheaper 😎.

BLZE is not growing like crazy but its operational performance is quite strong. In the first half of the year, revenue increased 24% y/y to $31.4 million while its Net Retention Rate came in at a healthy 110%. Over the same period, research and development and marketing expenses increased faster than revenue, at 50% y/y, which led to an operating margin of -20%.


📫Originally posted as part of the Sunday Newsletter
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Commentary

There are several competitors that offer similar cloud storage and backup services such as Dropbox ($DBX) or the cloud giants Google ($GOOG$GOOGL) and Amazon. Yet BLZE offers competitive prices and has built a large and engaged community that creates trust and attracts new subscribers organically.

The market for cloud storage services is also expected to soar in the coming years due to the increasing amounts of data that need to be stored safely. This market is expected to grow from an estimated $50.1 billion in 2020 to $137 billion by 2025, so BLZE will enjoy strong industry tailwinds.

The company has priced its IPO at a midpoint price of $16 per share which translates into a market value of $457 million and a P/S ratio of 7.6. It’s a reasonable or even cheap valuation. Dropbox that reported revenue growth of just 13% in the first half of the year is trading at nearly the same multiples. Shares start trading on Thursday.

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