Detailed narrative
AI Strategy and Market Opportunity
Backblaze's decision to lean into AI is translating directly into strong financial performance and momentum. The company identifies a $14 billion market opportunity by 2031 for neocloud demand for capacity tier storage, driven by the need for scalable, affordable, and performant storage for AI workloads. Customers consistently require the ability to scale with fast-growing data, architectural freedom across clouds, and optimized storage performance, all at an affordable price point.
CoreWeave Partnership and Managed Storage
The $335 million multi-year agreement with CoreWeave, the largest contract in Backblaze's history, serves as clear proof of its capability to be the capacity tier for AI infrastructure. This partnership also introduces a new capital-light managed storage approach, where Backblaze provides its technology and operating expertise directly into a customer's infrastructure. This model expands the company's opportunity to service customers in their regional data centers and sovereign cloud needs, with about half a dozen active conversations already underway for this offering.
Upmarket Traction and Customer Expansion
Backblaze continues to demonstrate significant progress moving upmarket, ending the quarter with 235 customers contributing more than $50,000 each in ARR, marking a 57% year-over-year increase. ARR from this cohort grew 67% year-over-year. The company closed four deals valued at over $500,000 this quarter, including three AI-related wins, indicating a trend towards larger and longer-duration customer commitments and increased contracted demand.
B2 Performance and Price Increase Impact
The B2 segment accelerated its growth to 34% year-over-year, representing its strongest growth rate in seven quarters. This strong performance was broad-based, with almost every route to market overperforming. The price increase implemented on May 1 contributed approximately 8 percentage points to B2 growth, and notably, the anticipated churn from this increase did not materialize, indicating underlying strength in the business.
Go-to-Market Transformation Success
The ongoing go-to-market transformation, including the appointment of a new CRO and investments in sales development, RevOps, and operational strategy, is yielding positive results. The addition of almost 50 customers to the >$50,000 ARR group this quarter, a number historically achieved over a full year, suggests improved execution and broad-based repeatability in the sales process. This transformation is enabling the company to effectively pursue larger opportunities.
Capital Investment and Financial Health
Backblaze is accelerating CapEx in the second half of 2026 and into 2027 to build required capacity for signed customer commitments, with CapEx for 2026 expected to be 55% to 65% of revenue. Despite these investments, the company expects to be adjusted free cash flow neutral for the full year by leveraging capital leases and its strong cash balance of $50 million. The CapEx break-even period is less than 24 months, and hardware assets have a useful life of over six years.