Backblaze (BLZE) Q1 2026: B2 Cloud Storage Surges 24% as AI Pipeline Expands
Backblaze’s B2 cloud storage momentum accelerated in Q1, with AI-driven demand fueling larger deal sizes and a strategic guidance raise. The company’s upmarket shift and neocloud partnerships are translating into both operational leverage and a more resilient growth profile. With AI workloads compounding data needs, Backblaze’s platform is increasingly positioned as critical infrastructure for next-generation cloud ecosystems.
Summary
- AI-Driven Demand Shift: Over one third of new bookings now stem from AI customers, transforming pipeline composition.
- Upmarket Execution: Average sales deal size more than doubled, supported by large neocloud and enterprise wins.
- Guidance Reset: Raised full-year outlook as pricing actions and usage gains converge for higher margin expansion.
Business Overview
Backblaze is a cloud storage provider specializing in cost-efficient, high-performance storage solutions for businesses and developers. The company generates revenue primarily through its B2 cloud storage platform, a consumption-based storage service, and a legacy computer backup business, a subscription-based backup offering for individuals and small businesses. B2 is now the dominant growth engine, while computer backup is a declining but cash-generative segment.
Performance Analysis
B2 cloud storage delivered 24% year-over-year growth, reaching $22.4 million and representing the clear engine of expansion for Backblaze. The company’s annual recurring revenue (ARR) climbed $5 million sequentially to $158 million, with B2 ARR up 28% year-over-year. Notably, the cohort of customers generating over $50,000 in ARR grew 51% to 187, underscoring the upmarket trajectory and success in landing larger enterprise and infrastructure customers.
Gross margin improved to 61%, up from 56% a year ago, reflecting both scale efficiencies and the extension of fixed asset useful life. Operating expenses remained flat sequentially and improved as a percentage of revenue, translating to adjusted EBITDA margin of 26%. The company reported negative free cash flow in Q1 due to timing of payments and accelerated capital expenditures, but reiterated its target for full-year free cash flow positivity. The recently implemented B2 pricing and packaging changes, including the removal of API transaction fees, are expected to be accretive to both revenue and margin for the remainder of the year.
- AI Pipeline Acceleration: AI customers now account for over one third of all new bookings, and the number of AI customers grew 76% year-over-year, driving larger and faster-growing cohorts.
- Upmarket and Neocloud Penetration: Multi-million dollar deals with neocloud providers and enterprise data infrastructure clients are increasing deal size and contract duration.
- Operational Leverage: Gross margin expansion and stable operating expenses are delivering improved EBITDA margins as revenue scales.
Backblaze’s performance reflects both strong organic demand and early returns from its go-to-market transformation, with the B2 business now solidly outpacing the declining computer backup segment.
Executive Commentary
"AI is making storage increasingly important and our organization is gelling and executing better than ever to capture that opportunity. This is evidenced by more than one third of all new bookings coming from AI and the number of AI customers using our platform grown by 76% year over year."
Gleb Budman, Co-founder, CEO & Chairperson
"Q1 outperformance reflects stronger sales execution and the EBITDA BEAT demonstrates the operating leverage in the model... B2 cloud storage grew 24%... and ARR grew 28% year-over-year, reflecting the underlying strength and momentum of the business."
Mark Sweetan, Chief Financial Officer
Strategic Positioning
1. AI Infrastructure as a Growth Flywheel
Backblaze is capitalizing on the surge in AI workloads by providing the data lake layer—high-capacity, cost-effective storage—essential for both model training and inference at scale. The company’s integration into developer tools (such as Hugging Face and MLflow) and direct partnerships with AI infrastructure and product companies are embedding B2 deeper into the AI ecosystem.
2. Neocloud Partnerships and Upmarket Expansion
Strategic wins with leading neocloud providers are driving larger, multi-year deals and expanding Backblaze’s total addressable market. Management estimates a $14 billion opportunity by 2030 in this segment, with initial six, seven, and eight figure deals representing early stages of potentially much larger relationships.
3. Go-to-Market Transformation
Backblaze’s revamped sales organization, highlighted by the appointment of a new Chief Revenue Officer and targeted programs like Flamethrower (startup outreach), is delivering pipeline consistency and higher quota attainment. Awareness and land-and-expand motions are accelerating installed base expansion and new logo acquisition.
4. Pricing Power and Margin Expansion
The May 1 B2 pricing update, which simplified billing by eliminating API transaction fees and raised per-terabyte rates, is expected to be accretive to both revenue and margin. Backblaze maintains a significant cost advantage versus hyperscalers, even after the price increase, preserving its value proposition.
5. Capital Efficiency and Resource Allocation
Accelerated capital expenditures are being deployed to meet robust demand signals and pre-buy equipment in the face of rising hardware costs. Management is leveraging capital leases and operating cash flow to fund growth, avoiding dilutive equity raises and committing to modest stock buybacks to manage dilution.
Key Considerations
Backblaze’s Q1 results mark a decisive step in its transition from SMB backup provider to critical AI infrastructure partner. The company is demonstrating an ability to win larger deals, embed in developer workflows, and sustain gross margin expansion while investing ahead of demand.
Key Considerations:
- AI-Driven Cohort Growth: AI customers are scaling three times faster than the average customer, compounding storage needs and accelerating ARR growth.
- Deal Size Expansion: Average sales deal size more than doubled, and multi-million dollar contracts are becoming more frequent, improving revenue visibility.
- Retention and Upsell Dynamics: B2 net revenue retention improved to 110%, reflecting both organic data growth and successful cross-sell/upsell execution.
- Legacy Decline Managed: Computer backup is forecast to decline 5% YoY, but remains cash generative and stable, providing a financial buffer.
- Pricing Power Maintained: Even after the recent price increase, Backblaze’s offering remains dramatically more cost-efficient than hyperscalers, with bundled features like free egress and no transaction fees enhancing customer value.
Risks
Key risks include potential for neocloud customers to insource storage over time, hardware cost inflation pressuring capital intensity, and the unpredictability of large deal timing. While the AI pipeline is robust, there is inherent variability in usage-based revenue. The legacy backup segment’s decline, while managed, places greater pressure on B2 to sustain overall growth. Competitive responses from hyperscalers or emerging storage providers could also challenge Backblaze’s pricing power and differentiation.
Forward Outlook
For Q2 2026, Backblaze guided to:
- Revenue of $39.8 million to $40.2 million
- Adjusted EBITDA margin of 21% to 23%
For full-year 2026, management raised guidance:
- Revenue of $161.5 million to $163.5 million (up $5 million from prior midpoint)
- Adjusted EBITDA margin of 23% to 25% (up 400 basis points)
Management emphasized:
- Half of the guidance raise stems from organic business strength, half from the pricing update.
- Guidance excludes large, unpredictable deals and high variable usage upside, reflecting a conservative outlook.
Takeaways
Backblaze’s Q1 results validate its strategic pivot toward AI infrastructure and upmarket enterprise customers, with B2 cloud storage now the undisputed growth engine.
- AI and Neocloud Tailwinds: The rapid growth of AI workloads and neocloud partnerships are compounding demand for scalable, cost-efficient storage, driving larger, longer-term contracts.
- Operational Leverage and Margin Expansion: Gross margin gains and disciplined cost management are translating into higher EBITDA margins and a credible path to sustained free cash flow.
- Visibility and Upside for Investors: Watch for continued expansion of large enterprise deals, further integration into AI developer ecosystems, and the pace at which usage-based revenue from AI customers converts into predictable, multi-year contracts.
Conclusion
Backblaze delivered a quarter of accelerating growth, improved profitability, and raised guidance—driven by its successful repositioning as a foundational partner for AI and cloud infrastructure. The company’s execution on both product and go-to-market fronts is laying the groundwork for sustained, higher-quality growth.
Industry Read-Through
Backblaze’s results highlight a broader shift in cloud infrastructure demand as AI workloads drive exponential data growth and challenge the economics of traditional hyperscaler storage models. The emergence of neoclouds—specialized, next-generation cloud providers—creates a new ecosystem for storage vendors who can deliver both performance and cost efficiency at scale. Backblaze’s traction with developer tools and AI startups signals that seamless integration and transparent pricing are becoming critical differentiators in the storage market. For cloud infrastructure peers, the accelerating migration of data-intensive AI workloads to alternative storage platforms is a trend to watch, as it could reshape competitive dynamics and open new partnership or consolidation opportunities across the sector.