Backblaze (BLZE) Q2 2024: B2 Cloud Storage Accelerates 43%, Upmarket Push Redefines Customer Mix
Backblaze’s B2 Cloud Storage business surged, with enterprise adoption and innovation driving a step-change in customer profile and margin structure. The company’s move upmarket is reshaping its revenue base, while new products like Live Read signal ongoing differentiation. Guidance was raised across all major metrics, underlining management’s confidence in sustaining growth and margin improvement into the second half.
Summary
- Enterprise Expansion: Upmarket momentum is materially shifting the customer base toward larger, higher-value accounts.
- Product Differentiation: Innovations like Live Read are unlocking new use cases and margin opportunities, especially in media and AI.
- Margin Structure: Operational discipline and data center optimization are structurally improving profitability.
Business Overview
Backblaze provides cloud storage and backup solutions through two main segments: B2 Cloud Storage, its object storage platform for developers and enterprises, and Computer Backup, a direct-to-consumer and SMB backup product. The company generates revenue primarily from subscription and usage-based fees, with a business model increasingly weighted toward larger enterprise contracts and channel partners. B2 Cloud Storage is the growth engine, while Computer Backup remains a stable, cash-generative base.
Performance Analysis
Backblaze delivered 27% revenue growth year-over-year, led by a 43% surge in B2 Cloud Storage and robust 15% growth in Computer Backup. B2 now represents roughly half of total revenue, reflecting the company’s deliberate pivot toward higher-value, enterprise-centric deals. Net revenue retention (NRR) also improved, reaching 114% overall, with B2 segment NRR at a standout 126%—a clear signal of successful expansion within existing customers.
Gross margin reached record highs, with adjusted gross margin at 78%, up from 75% last year, driven by data center optimization and prior price increases. Adjusted EBITDA margin improved to 9%, marking the third consecutive quarter of profitability and a 16-point improvement year-over-year. Cash usage declined 80% in the first half, with management reiterating a year-end cash floor of $20 million and projecting break-even total cash usage by mid-2025.
- Upmarket Customer Shift: The number of customers contributing over $50,000 in ARR rose 55% year-over-year, now at 115, underscoring traction in enterprise and verticalized sales.
- B2 Reserve Channel Strength: Renewal rates and expansion activity in the B2 Reserve channel exceeded expectations, driving incremental upside.
- Churn and Retention Outperformance: Gross customer retention held at 90%, with lower churn than forecast, especially in Computer Backup despite prior price increases.
Backblaze’s operational and financial discipline is translating into consistent margin expansion and revenue visibility, with both segment and consolidated performance trending ahead of prior expectations.
Executive Commentary
"We are not seeing [macro headwinds] impact our business. As our numbers show, we beat our Q2 guidance, guided strongly for Q3, and raised guidance for the year."
Gleb Budman, Co-founder, CEO & Chairperson of the Board
"Both adjusted gross margin and GAAP gross margin reached all-time highs...driven by the price increase and data center optimizations. This quarter marked our third consecutive adjusted EBITDA profit, this time rising to $2.7 million, or 9% of revenue."
Frank Patchell, Chief Financial Officer
Strategic Positioning
1. Upmarket Enterprise Focus
Backblaze’s strategic emphasis on larger customers is fundamentally altering its revenue composition. The company has scaled its enterprise-focused sales team, with new Chief Revenue Officer Jason Wakeham tasked with accelerating this transition. The move is visible in both the rapid growth of $50,000+ ARR accounts and the shift in billing terms, with more revenue now coming from customers on payment terms rather than credit card.
2. Product Innovation as Differentiator
Innovation is central to Backblaze’s upmarket strategy. The launch of B2 Live Read—a patent-pending feature enabling access to files during upload—addresses key pain points for media, entertainment, and AI customers. Management highlighted early integrations with industry players like Telestream and a usage-based pricing model ($15 per terabyte uploaded), which offers higher margins and expands the company’s value proposition beyond commodity storage.
3. Channel and Partner Ecosystem
Channel sales, especially through B2 Reserve, are outperforming expectations, with partners renewing at higher rates and expanding storage commitments. The company is also embedding its storage into third-party offerings via “powered by” integrations, broadening its reach and deepening use cases across verticals.
4. Operational Leverage and Margin Expansion
Disciplined headcount management and data center optimization are driving sustained margin improvement, with operating expense growth held in check even as revenue accelerates. The company’s ability to scale without significant new capital expenditures—unlike GPU-centric AI peers—is a notable structural advantage.
5. AI and Vertical Use Case Tailwinds
Backblaze is benefiting from AI-driven data growth, capturing customers who require cost-effective, accessible storage for large datasets used in machine learning and rendering. The company’s open cloud approach and free egress pricing are winning share from hyperscalers, particularly as customers seek to avoid lock-in and optimize cloud spend.
Key Considerations
This quarter marks a decisive step in Backblaze’s evolution from a self-serve SMB platform to a multi-segment enterprise storage provider, with innovation and upmarket sales driving both growth and margin gains. The following considerations are central for investors:
- Enterprise Customer Mix Shift: Larger accounts now represent a growing share of revenue, enhancing stickiness and visibility but increasing exposure to contract negotiations and sales cycles.
- Innovation Pipeline: The success of new products like Live Read will be critical in sustaining differentiation and supporting premium pricing.
- Sales Execution Risk: The ramp-up of the new CRO and AE team introduces transition risk, though early results are positive.
- Retention Resilience: Outperforming churn expectations post-price increase signals pricing power and customer value, but retention rates must be monitored as the customer base shifts upmarket.
- Cash and Capital Discipline: With break-even total cash usage expected in mid-2025, continued operational discipline will be key as the company invests in growth.
Risks
Backblaze faces execution risk as it transitions to a more enterprise-driven model, including longer sales cycles, potential pricing concessions on committed contracts, and integration challenges with new leadership. The company’s exposure to large accounts may increase revenue volatility. Competitive pressure from hyperscalers and evolving customer requirements in AI and media remain ongoing challenges. While management asserts insulation from macro headwinds, a severe economic contraction could still impact IT budgets and project timing.
Forward Outlook
For Q3, Backblaze guided to:
- Revenue of $32.4 to $32.8 million
- Adjusted EBITDA margin of 9% to 11%
For full-year 2024, management raised guidance:
- Total revenue of $126.5 to $128.5 million (prior $126 to $128 million)
- B2 Cloud Storage growth of approximately 40%
- Adjusted EBITDA margin of 9% to 11% (prior 8% to 10%)
Management highlighted continued strength in large deal momentum, improved retention, and operational leverage as key drivers of the raised outlook. Transition risks from sales leadership and movement to committed contracts are being monitored, but guidance reflects confidence in continued expansion and margin delivery.
- AE team expected to be fully ramped by year-end
- Live Read to exit preview and reach general availability by year-end
Takeaways
Backblaze’s Q2 demonstrates a business in transformation, with enterprise momentum, product innovation, and margin expansion all moving in tandem.
- B2 Cloud Storage is now the clear growth engine, with upmarket wins and product differentiation translating into higher retention and margin structure.
- Operational discipline is yielding tangible results, with profitability, cash efficiency, and gross margin all at all-time highs.
- Investors should watch for continued enterprise traction, the ramp of the new sales organization, and the impact of new product launches on both revenue growth and margin sustainability.
Conclusion
Backblaze’s Q2 results confirm its successful pivot to enterprise cloud storage, with innovation and disciplined execution underpinning both growth and profitability. The company’s raised guidance and expanding margin profile suggest durable momentum, but the transition to a more complex, upmarket sales model will require continued vigilance and execution.
Industry Read-Through
Backblaze’s upmarket traction and product-led differentiation highlight a broader shift in the cloud storage industry: cost transparency, open architecture, and verticalized solutions are increasingly winning share from hyperscalers, especially as AI and media workloads proliferate. The company’s ability to scale profitably without hyperscaler-level CapEx is a notable contrast, suggesting that niche players with focused innovation and operational discipline can carve out defensible positions. Channel and partner ecosystems are emerging as critical go-to-market levers, and the success of usage-based, high-margin features like Live Read will be closely watched by both incumbents and disruptors. For investors, the cloud storage landscape is tilting toward specialized, margin-accretive solutions as data growth and workload diversity accelerate.