On Monday, Craig-Hallum maintained a Buy rating on Backblaze Inc (NASDAQ:BLZE) shares and increased the price target to $11.00 from the previous $10.00. The firm's analysis points to a significant undervaluation of the company based on its earnings before interest, taxes, depreciation, and amortization (EBITDA) and revenue multiples in comparison to its growth and market position.
The analyst highlighted Backblaze's recent 27% revenue growth and the anticipated path to free cash flow break-even by mid-2025. Despite the complexity of comparing products due to intricate pricing structures by competitors, especially Hyperscalers, Backblaze's B2 cloud storage offering is deemed to have a competitive edge due to cost efficiency and performance.
Backblaze has been recognized for its ability to compete in the cloud storage market, which is difficult for Hyperscalers to penetrate without risking their existing business. The company's leadership has been bolstered with key executive appointments, which are expected to drive growth in the coming years.
The firm also noted the increasing gross and operating margins of Backblaze, indicating a differentiated product offering. Customer loyalty is reflected in the company's high gross retention rate in the low-90s. Comparisons with public storage peers suggest that Backblaze could achieve similarly high free cash flow margins as it scales.
In summary, Craig-Hallum's position reflects confidence in Backblaze's market opportunity, product offerings, and strategic leadership enhancements. The firm asserts that the market perception of Backblaze does not fully align with the company's strong performance and potential, leading to the decision to raise the stock's price target to $11.00 while reiterating a Buy rating.
In other recent news, Backblaze has exceeded Q2 expectations, reporting a 27% increase in revenue and marking its third consecutive quarter of profitability. The company's B2 Cloud Storage segment experienced a significant 43% rise in revenue. New executive appointments were announced, including Jason Wakeam as Chief Revenue Officer and Marc Suidan as CFO.
The company's growth trajectory remains positive, with a notable increase in large customer accounts and a net revenue retention rate of 114%. Backblaze has raised its annual revenue guidance to between $126.5 million and $128.5 million, showing confidence in its continued growth, especially in its B2 Cloud Storage business, which is expected to grow by 40%.
Recent developments also include the launch of B2 Live Read, a new cloud service. The company expects Q3 revenue to be between $32.4 million and $32.8 million. Backblaze is on track to reach total cash usage breakeven by mid-2025 and become free cash flow positive shortly thereafter. These factual updates provide insights into the company's recent performance and future expectations.
InvestingPro Insights
Recent data from InvestingPro adds depth to Craig-Hallum's bullish outlook on Backblaze Inc (NASDAQ:BLZE). The company's market cap stands at $314.79 million, with a robust revenue growth of 24.02% over the last twelve months as of Q2 2024. This aligns with the analyst's observation of Backblaze's 27% revenue growth and supports the view of a company on an upward trajectory.
InvestingPro Tips highlight that 4 analysts have revised their earnings upwards for the upcoming period, potentially indicating growing confidence in Backblaze's financial performance. This corroborates Craig-Hallum's positive stance on the company's future prospects.
Moreover, the strong return over the last month and three months, as noted by InvestingPro, reflects the market's increasing recognition of Backblaze's potential, which the analyst suggests is still undervalued.
However, investors should note that Backblaze operates with a moderate level of debt and was not profitable over the last twelve months, with an adjusted operating income of -$47.27 million. This underscores the importance of the company's path to free cash flow break-even by mid-2025, as highlighted in the analyst report.
For a more comprehensive analysis, InvestingPro offers additional tips and data points that could provide further insights into Backblaze's financial health and market position.
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