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I love Backblaze. Kind of surprised they aren’t profitable. >” In the years ended December 31, 2019 and 2020, our revenue was $40.7 million and $53.8 million,

I love Backblaze. Kind of surprised they aren’t profitable. >” In the years ended December 31, 2019 and 2020, our revenue was $40.7 million and $53.8 million, respectively, representing growth of 32%. We incurred net losses of $1.0 million and $6.6 million for the years ended December 31, 2019 and 2020, respectively”

qeternity 5y ago
This caught me by surprise as well because I am pretty sure they have stated before that they were profitable.
- mkr-hn 5y ago
  They apparently build 500+ of their pods at close to $9k each (as of the older version--can't find cost on the latest) every year in 2016. That could represent the cost of growth in free trials through 2020 with people getting their home offices set up. A few hundred thousand people added over 2020 not paying for 15 days, and possibly not paying at all if they cancel, would be expensive.
  - qeternity 5y ago
    They were unprofitable in 2019 as well… And the cost of the pods will be capitalized and depreciated so a large surge in buildings won’t necessarily lead to bad financials.
    - mbesto 5y ago
      > And the cost of the pods will be capitalized and depreciated so a large surge in buildings won’t necessarily lead to bad financials. I was curious about this as well: Cost of revenue consists of expenses for providing our platform and cloud services to our customers. These expenses include operating in co-location facilities, network and bandwidth costs, and depreciation of our equipment and capital lease equipment in co-location facilities. Personnel-related costs associated with customer support and maintaining service availability, including salaries, benefits, bonuses, and stock-based compensation are also included. Cost of revenue also includes credit card processing fees, amortization of capitalized internal-use software development costs, and allocated overhead costs. We intend to continue to invest additional resources in our infrastructure and related personnel, and our customer support organization, to support the growth of our business. Some of these investments, including costs of infrastructure equipment (including related depreciation) and expansion, are incurred in advance of generating revenue, and either the failure to generate anticipated revenue or fluctuations in the timing of revenue could affect our gross margin from period to period. Sounds like this is captured in their cost of revenue. 50% gross profit is not great compared to a SaaS company, but still not terrible compared to <insert literally any other company that isn't enabled by tech>. They also generate ~$12M in net cash from operating activities. So "profitable" is a weird one here. They'll have to continually invest in data centers and hardware, but generally speaking they are turning cash pretty well.
- gruez 5y ago
  Yeah, what gives? I remember they prided themselves on being profitable, self-funded and not beholden to VCs. Sure enough, I was able to confirm that with a quick search: https://news.ycombinator.com/item?id=15074289 https://news.ycombinator.com/item?id=15074289 >Finally, Backblaze is profoundly different than CrashPlan in that we never really raised any bank financing or VC financing. We're 90% employee owned, and there are no deep pockets. CrashPlan raised something like $150 million which comes with "pressure to grow fast or die". Backblaze is free of any such pressure, we own our own fate. https://news.ycombinator.com/item?id=21006216 https://news.ycombinator.com/item?id=21006216 > Yev here -> we HAVE to be cash-flow positive since we're not VC-funded. When we started the company it was bootstrapped, so "making enough money to survive" has always been a part of the equation! That last comment was from 2019, yet according to the S-1, they were actually unprofitable. What's going on here? Were they profitable before, then suddenly taking on a massive loss? Their loss in 2020 was huge compared to the one in 2019.
  - Mxs2000 5y ago
    If you examine the financial statements you will see that they were Cash Flow positive in 2019 (but not in 2020). It’s also important to note that being cash flow positive is not the same as being GAAP/IFRS profitable (Net Income).
  - jonas21 5y ago
    They didn't say they were profitable - they said they were cash-flow positive. And if you look at the cash flow statement in the S-1, they were indeed cash-flow positive in 2019. It looks like much of the difference comes down to stock-based compensation. This doesn't cost the company any cash, but under GAAP, it has to be recorded as an expense. (IANAA, so take what I say with a grain of salt).
    - qeternity 5y ago
      Backblaze was tweeting about being profitable as late as 2020: https://twitter.com/backblaze/status/1242481625004273665 https://twitter.com/backblaze/status/1242481625004273665
bpodgursky 5y ago
Pretty bold to IPO with those kind of revenue #s these days... I guess the iron is hot though.
- mbesto 5y ago
  Not really. They've taken very little outside funding (mostly venture debt and a series A), and have been around for 10+ years. They'll likely get a better valuation from the public market than they would privately and the founders who have been waiting 10 years can take some money off of the table. Smart move IMO.
  - ramesh31 5y ago
    >They'll likely get a better valuation from the public market than they would privately and the founders who have been waiting 10 years can take some money off of the table. This is really all there is to it. You don't actually have to build a business anymore to get rich. You just put together something that looks like one, pay yourself a handsome salary for 10 years, then cash out and retire to New Zealand. Sweet gig if you can get it.
    - mbesto 5y ago
      > Sweet gig if you can get it. Did you also start a business from the ground up and run it to the size that generates $50M in revenue? What exactly about Backblaze is a "sweet gig if you can get it"...achieving this is not trivial...
      - ramesh31 5y ago
        >..achieving this is not trivial... Of course it's not. You need to have gone to the right school, made the right friends, be the right ethnicity/gender (white or asian male), and have access to the right VC. But given all that, it's a cakewalk.
- tux3 5y ago
  Well, growth empirically beats all, won't it? What's even revenue to say in the face of growth.
m0zg 5y ago
Sounds to me like prices will pretty much inevitably go up after they're public, and I'll finally have the motivation to set up my own remote backup by exchanging hard drives with a friend of mine on the other end of the country.
- djbusby 5y ago
  Tried rsync.net?
  - m0zg 5y ago
    25 dollars per TiB/mo? LOL.
  - eikenberry 5y ago
    They were talking about switching if they got more expensive and rsync.net is already a lot more expensive unless you have very little data (<300GB).
    - m0zg 5y ago
      It's not just that. It's also that I don't really trust anything centralized anymore, and internet speeds are such that homegrown solutions are becoming more and more attractive. Another benefit is that I'll also be able to easily backup my Linux machines, which BB currently does not support. At the moment I just periodically copy data to windows on cron so that it's backed up - not ideal to say the least.
      - rexreed 5y ago
        What would happen if your backup harddrive at your friends' place was stolen / destroyed / went bad?
        m0zg 5y ago
        I'd have to send him another hard drive, obviously.
opinion-is-bad 5y ago
I have not looked at the financials, but equity compensation to employees can often be vesting at a significant higher rate around the time of an IPO and push an otherwise profitable company into a short-term net loss.
zeckalpha 5y ago
Capitalized expenses for growth?
tgtweak 5y ago
I think if you consider the increase in assets (total value of the # of servers, racks, network gear etc) from the purchase of hardware to accommodate that growth, in order to satisfy those revenues and future revenues, it makes sense. It is entirely intentional and desirable for any gross margins to go fully back into growth or assets to support growth - especially in the cloud game where infrastructure costs and R&D are high and front-loaded. Once you purchase a hard drive and place it in a network-connected server, it will cost a few pennies each month to keep it spinning while it will generate revenue for 5 years (or more) after. You can see this by looking at reported Total Assets increasing from $38M in 2019 to $54M in 2020. That is after depreciation mark-down of <2020 equipment which is typically very high for IT equipment (upwards of 33% per year of the original value). The increase in annual revenue over time from previous cohorts is very attractive and shows that customers do appreciate the cost effectiveness and quality of service compared to other offerings. If you consider they bought & added, net of depreciation, about $16M of assets to their balance sheet in 2020, the loss of 6M doesn't seem terrible. Using the bean counter approach - no new marketing, no spending on growth, no unnecessary R&D - they could have cleared about $20-25M of ebit in 2020. Deciding to use your gross profit to fuel further growth (especially considering they're compounding it at a healthy rate and doing so without giving up equity or interest) is a wise move. If anything, it probably would have made sense to take some debt or finance more of the hardware purchases early on (as I see they are doing now at some scale as of 2020) in order to put those proceeds towards customer growth. The only thing I see which is a marginal concern with these numbers is that it's difficult to see the split between marketing spend on b2 customers and backup customers (They spent $8M in 2019 on sales and marketing to generate 42k new customers, and $11.9M in 2020 to add 40k). It is very possible and likely that those marketing dollars went towards new enterprise customers (on b2 storage vs backup) and the revenue-per-customer number increasing during that timeframe seems to support that. Are blog posts calculated in the sales/marketing spend? Seems lots of the customers came from the organic content play. Very cool to see the company who's free blog post about which harddrives are most reliable (when some had >5% annual failure rate and others <1% for the same price) nearly 10 years ago come around to s1.
- Osiris 5y ago
  Thank you for the very insightful accounting perspective. I have a hard time understanding all the complexities of modern account and how a "loss" isn't always a loss. On a side note, I'm a very happy Backblaze customer and the same time curse Dropbox for not offering a 100GB $5/mn plan. Backblaze pricing is very customer friendly.
milleramp 5y ago
Me too, but maybe their lack of profitability and my happiness is correlated.
georgeburdell 5y ago
Amazon was notorious for having a profit of about 0 for years and years due to investment in capital (to produce future earnings). Your spending today includes both the operational costs of creating what you have today, plus the investment you're making to generate additional revenue in the future. Obviously this excludes other important expenses like depreciation, but you get the idea.
jonplackett 5y ago
I love backblaze too - but I don’t know why Apple haven’t copied their business out of existence (for apple users at least) The original backblaze was literally Time Machine in the cloud.
- ahartmetz 5y ago
  Presumably because Backblaze's margins are far too low for Apple, so Apple would have to do "Backblaze, but overpriced", which could look bad - or be content with low margin.
  - ethbr0 5y ago
    I'm curious about Apple's cloud strategy. "Cloud, but only for iUsers" seems... weird, from a scaling perspective? Granted, there are more Apple device customers than any other possible bucket, but is it enough to drive economies down to the point of competing on cloud pricing? And if not, then they're still stealing iDevice margin to price cloud competitively.
    - jonplackett 5y ago
      I think their plan is to just always make a little bit more from every hardware customer Plus, to make their hardware more attractive by having that service available. Storing backups is probably also quite cheap to do since the data would be infrequently accessed. You don’t need fancy ssds. Cheapo hard drives will be fine.
    - ksec 5y ago
      > but is it enough to drive economies down to the point of competing on cloud pricing? More than Enough. When you have 1 Billion iPhone customer who are also in the highest paying basket. The purchasing power is likely over 50% of the total market. As similarly shown in App Store market. The problem is Apple has always had an Asset Light strategy. Keeping many Datacenter of Storage running just isn't their thing. That is why they are still relying on Azure, AWS for iCloud Storage. >And if not, then they're still stealing iDevice margin to price cloud competitively. Currently the iCloud Services ( or in fact all Services Revenue ) are masked by App Store profit and Google's Search Engine Deal. i.e most of their other Services like Apple Music, iCloud, News+ are low margin business but are used to dilute down their extremely high margin profits from App Store and Search Engine.
jacquesm 5y ago
They could be profitable at the drop of a hat, they'd just have to slow down their growth. This isn't rare for tech companies that IPO, in fact, these losses are rather modest for the level that they are operating at.

qeternity 5y ago

This caught me by surprise as well because I am pretty sure they have stated before that they were profitable.

mkr-hn 5y ago
They apparently build 500+ of their pods at close to $9k each (as of the older version--can't find cost on the latest) every year in 2016. That could represent the cost of growth in free trials through 2020 with people getting their home offices set up. A few hundred thousand people added over 2020 not paying for 15 days, and possibly not paying at all if they cancel, would be expensive.
- qeternity 5y ago
  They were unprofitable in 2019 as well… And the cost of the pods will be capitalized and depreciated so a large surge in buildings won’t necessarily lead to bad financials.
  - mbesto 5y ago
    > And the cost of the pods will be capitalized and depreciated so a large surge in buildings won’t necessarily lead to bad financials. I was curious about this as well: Cost of revenue consists of expenses for providing our platform and cloud services to our customers. These expenses include operating in co-location facilities, network and bandwidth costs, and depreciation of our equipment and capital lease equipment in co-location facilities. Personnel-related costs associated with customer support and maintaining service availability, including salaries, benefits, bonuses, and stock-based compensation are also included. Cost of revenue also includes credit card processing fees, amortization of capitalized internal-use software development costs, and allocated overhead costs. We intend to continue to invest additional resources in our infrastructure and related personnel, and our customer support organization, to support the growth of our business. Some of these investments, including costs of infrastructure equipment (including related depreciation) and expansion, are incurred in advance of generating revenue, and either the failure to generate anticipated revenue or fluctuations in the timing of revenue could affect our gross margin from period to period. Sounds like this is captured in their cost of revenue. 50% gross profit is not great compared to a SaaS company, but still not terrible compared to <insert literally any other company that isn't enabled by tech>. They also generate ~$12M in net cash from operating activities. So "profitable" is a weird one here. They'll have to continually invest in data centers and hardware, but generally speaking they are turning cash pretty well.
gruez 5y ago
Yeah, what gives? I remember they prided themselves on being profitable, self-funded and not beholden to VCs. Sure enough, I was able to confirm that with a quick search: https://news.ycombinator.com/item?id=15074289 https://news.ycombinator.com/item?id=15074289 >Finally, Backblaze is profoundly different than CrashPlan in that we never really raised any bank financing or VC financing. We're 90% employee owned, and there are no deep pockets. CrashPlan raised something like $150 million which comes with "pressure to grow fast or die". Backblaze is free of any such pressure, we own our own fate. https://news.ycombinator.com/item?id=21006216 https://news.ycombinator.com/item?id=21006216 > Yev here -> we HAVE to be cash-flow positive since we're not VC-funded. When we started the company it was bootstrapped, so "making enough money to survive" has always been a part of the equation! That last comment was from 2019, yet according to the S-1, they were actually unprofitable. What's going on here? Were they profitable before, then suddenly taking on a massive loss? Their loss in 2020 was huge compared to the one in 2019.
- Mxs2000 5y ago
  If you examine the financial statements you will see that they were Cash Flow positive in 2019 (but not in 2020). It’s also important to note that being cash flow positive is not the same as being GAAP/IFRS profitable (Net Income).
- jonas21 5y ago
  They didn't say they were profitable - they said they were cash-flow positive. And if you look at the cash flow statement in the S-1, they were indeed cash-flow positive in 2019. It looks like much of the difference comes down to stock-based compensation. This doesn't cost the company any cash, but under GAAP, it has to be recorded as an expense. (IANAA, so take what I say with a grain of salt).
  - qeternity 5y ago
    Backblaze was tweeting about being profitable as late as 2020: https://twitter.com/backblaze/status/1242481625004273665 https://twitter.com/backblaze/status/1242481625004273665

bpodgursky 5y ago

Pretty bold to IPO with those kind of revenue #s these days... I guess the iron is hot though.

mbesto 5y ago
Not really. They've taken very little outside funding (mostly venture debt and a series A), and have been around for 10+ years. They'll likely get a better valuation from the public market than they would privately and the founders who have been waiting 10 years can take some money off of the table. Smart move IMO.
- ramesh31 5y ago
  >They'll likely get a better valuation from the public market than they would privately and the founders who have been waiting 10 years can take some money off of the table. This is really all there is to it. You don't actually have to build a business anymore to get rich. You just put together something that looks like one, pay yourself a handsome salary for 10 years, then cash out and retire to New Zealand. Sweet gig if you can get it.
  - mbesto 5y ago
    > Sweet gig if you can get it. Did you also start a business from the ground up and run it to the size that generates $50M in revenue? What exactly about Backblaze is a "sweet gig if you can get it"...achieving this is not trivial...
    - ramesh31 5y ago
      >..achieving this is not trivial... Of course it's not. You need to have gone to the right school, made the right friends, be the right ethnicity/gender (white or asian male), and have access to the right VC. But given all that, it's a cakewalk.
tux3 5y ago
Well, growth empirically beats all, won't it? What's even revenue to say in the face of growth.

m0zg 5y ago

Sounds to me like prices will pretty much inevitably go up after they're public, and I'll finally have the motivation to set up my own remote backup by exchanging hard drives with a friend of mine on the other end of the country.

djbusby 5y ago
Tried rsync.net?
- m0zg 5y ago
  25 dollars per TiB/mo? LOL.
- eikenberry 5y ago
  They were talking about switching if they got more expensive and rsync.net is already a lot more expensive unless you have very little data (<300GB).
  - m0zg 5y ago
    It's not just that. It's also that I don't really trust anything centralized anymore, and internet speeds are such that homegrown solutions are becoming more and more attractive. Another benefit is that I'll also be able to easily backup my Linux machines, which BB currently does not support. At the moment I just periodically copy data to windows on cron so that it's backed up - not ideal to say the least.
    - rexreed 5y ago
      What would happen if your backup harddrive at your friends' place was stolen / destroyed / went bad?
      - m0zg 5y ago
        I'd have to send him another hard drive, obviously.

opinion-is-bad 5y ago

I have not looked at the financials, but equity compensation to employees can often be vesting at a significant higher rate around the time of an IPO and push an otherwise profitable company into a short-term net loss.

zeckalpha 5y ago

Capitalized expenses for growth?

tgtweak 5y ago

I think if you consider the increase in assets (total value of the # of servers, racks, network gear etc) from the purchase of hardware to accommodate that growth, in order to satisfy those revenues and future revenues, it makes sense. It is entirely intentional and desirable for any gross margins to go fully back into growth or assets to support growth - especially in the cloud game where infrastructure costs and R&D are high and front-loaded. Once you purchase a hard drive and place it in a network-connected server, it will cost a few pennies each month to keep it spinning while it will generate revenue for 5 years (or more) after. You can see this by looking at reported Total Assets increasing from $38M in 2019 to $54M in 2020. That is after depreciation mark-down of <2020 equipment which is typically very high for IT equipment (upwards of 33% per year of the original value). The increase in annual revenue over time from previous cohorts is very attractive and shows that customers do appreciate the cost effectiveness and quality of service compared to other offerings. If you consider they bought & added, net of depreciation, about $16M of assets to their balance sheet in 2020, the loss of 6M doesn't seem terrible. Using the bean counter approach - no new marketing, no spending on growth, no unnecessary R&D - they could have cleared about $20-25M of ebit in 2020. Deciding to use your gross profit to fuel further growth (especially considering they're compounding it at a healthy rate and doing so without giving up equity or interest) is a wise move. If anything, it probably would have made sense to take some debt or finance more of the hardware purchases early on (as I see they are doing now at some scale as of 2020) in order to put those proceeds towards customer growth. The only thing I see which is a marginal concern with these numbers is that it's difficult to see the split between marketing spend on b2 customers and backup customers (They spent $8M in 2019 on sales and marketing to generate 42k new customers, and $11.9M in 2020 to add 40k). It is very possible and likely that those marketing dollars went towards new enterprise customers (on b2 storage vs backup) and the revenue-per-customer number increasing during that timeframe seems to support that. Are blog posts calculated in the sales/marketing spend? Seems lots of the customers came from the organic content play. Very cool to see the company who's free blog post about which harddrives are most reliable (when some had >5% annual failure rate and others <1% for the same price) nearly 10 years ago come around to s1.

Osiris 5y ago
Thank you for the very insightful accounting perspective. I have a hard time understanding all the complexities of modern account and how a "loss" isn't always a loss. On a side note, I'm a very happy Backblaze customer and the same time curse Dropbox for not offering a 100GB $5/mn plan. Backblaze pricing is very customer friendly.

milleramp 5y ago

Me too, but maybe their lack of profitability and my happiness is correlated.

georgeburdell 5y ago

Amazon was notorious for having a profit of about 0 for years and years due to investment in capital (to produce future earnings). Your spending today includes both the operational costs of creating what you have today, plus the investment you're making to generate additional revenue in the future. Obviously this excludes other important expenses like depreciation, but you get the idea.

jonplackett 5y ago

I love backblaze too - but I don’t know why Apple haven’t copied their business out of existence (for apple users at least) The original backblaze was literally Time Machine in the cloud.

ahartmetz 5y ago
Presumably because Backblaze's margins are far too low for Apple, so Apple would have to do "Backblaze, but overpriced", which could look bad - or be content with low margin.
- ethbr0 5y ago
  I'm curious about Apple's cloud strategy. "Cloud, but only for iUsers" seems... weird, from a scaling perspective? Granted, there are more Apple device customers than any other possible bucket, but is it enough to drive economies down to the point of competing on cloud pricing? And if not, then they're still stealing iDevice margin to price cloud competitively.
  - jonplackett 5y ago
    I think their plan is to just always make a little bit more from every hardware customer Plus, to make their hardware more attractive by having that service available. Storing backups is probably also quite cheap to do since the data would be infrequently accessed. You don’t need fancy ssds. Cheapo hard drives will be fine.
  - ksec 5y ago
    > but is it enough to drive economies down to the point of competing on cloud pricing? More than Enough. When you have 1 Billion iPhone customer who are also in the highest paying basket. The purchasing power is likely over 50% of the total market. As similarly shown in App Store market. The problem is Apple has always had an Asset Light strategy. Keeping many Datacenter of Storage running just isn't their thing. That is why they are still relying on Azure, AWS for iCloud Storage. >And if not, then they're still stealing iDevice margin to price cloud competitively. Currently the iCloud Services ( or in fact all Services Revenue ) are masked by App Store profit and Google's Search Engine Deal. i.e most of their other Services like Apple Music, iCloud, News+ are low margin business but are used to dilute down their extremely high margin profits from App Store and Search Engine.

jacquesm 5y ago

They could be profitable at the drop of a hat, they'd just have to slow down their growth. This isn't rare for tech companies that IPO, in fact, these losses are rather modest for the level that they are operating at.