Backblaze IPO: A Test for Smaller Tech Companies

Backblaze IPO: A Valuation Perspective

Initially, TechCrunch identified Backblaze as a promising entity upon its initial public offering filing. The company possessed a strong content foundation for customer acquisition and a substantial customer base, positioning it as a noteworthy cloud storage provider.

However, determining a suitable valuation for the company proved challenging. We postponed a definitive assessment until Backblaze released its own guidance.

IPO Price Range and Valuation

Backblaze has now provided this guidance through an S-1/A filing, indicating an anticipated IPO price between $15 and $17 per share. With 28,545,893 shares projected to be outstanding following the IPO, this translates to a company valuation of $428.2 million to $485.3 million.

It’s important to note that the company’s fully diluted valuation is considerably higher. Renaissance Capital reports that at $16 per share, Backblaze’s valuation, including unexercised options and similar instruments, reaches $644 million.

Further calculation suggests that at the upper limit of its price range, Backblaze’s IPO could establish the storage company’s value at $684.3 million.

A Non-Unicorn IPO

This means Backblaze is entering the public market as a company valued under $1 billion – a distinction in the current tech landscape. Many recently public tech companies have achieved valuations far exceeding this threshold.

Several examples illustrate this trend. Robinhood and Coinbase debuted with valuations in the tens of billions. NerdWallet is poised to become a public unicorn based on its content alone, and AllBirds has also achieved unicorn status.

A Return to Traditional Valuation

Backblaze’s situation is relatively uncommon in our observation. Its IPO represents a shift back to a time when securing nine-figure valuations from private investors was more difficult.

This also signifies a return to applying double-digit multiples to profit, rather than simply revenue. This development has piqued our interest.

Q3 Results Preview

Before concluding, we have access to updated figures from Backblaze offering a preliminary look at its Q3 performance. Let’s examine these numbers.

Backblaze's Q3 2021 Performance and Revenue Multiple

According to the company's reports, Backblaze is projecting a revenue range for Q3 2021.

The estimated midpoint of $17.0 million to $17.3 million is $17.15 million. This represents a growth rate exceeding 24% when compared to the $13.8 million revenue reported during the same period last year.

However, Backblaze’s Q3 profitability presents a contrasting narrative. GAAP losses increased significantly year-over-year, and adjusted profits also experienced a decline.

This downturn in profitability can be attributed to factors such as increased interest expenses, share-based compensation, and depreciation costs.

Based on the midpoint of its Q3 revenue projections, Backblaze achieves an annualized run rate of $68.6 million. This valuation places the company at a multiple of slightly over 7x based on its initial public offering (IPO) price.

Utilizing the highest fully diluted valuation, Backblaze’s run-rate multiple could approach nearly 10x.

Companies operating in the cloud or software sectors with comparable growth rates generally command higher multiples in the public market.

However, these companies typically demonstrate superior gross margins.

Q2 Holdings serves as a relevant comparison point, exhibiting 28% growth as per Bessemer, alongside 45% gross margins and a 9.4x run rate multiple.

This valuation is closely aligned with Backblaze’s current position.

Prior to Backblaze’s public debut, NerdWallet and AllBirds are scheduled to launch their IPOs.

The focus will then return to software companies.

Further analysis will be conducted once Backblaze announces its final pricing. This will allow for a verification of calculations and an assessment of whether smaller technology companies can achieve IPO multiples comparable to those of larger firms with similar performance metrics.

If this proves to be the case, it would diminish a common justification for startups delaying their initial public offerings.