Up More Than 100% From Its Recent IPO, Is This Cloud Stock a Buy?

Since its initial public offering (IPO) at $16 per share on Nov. 11, Backblaze (NASDAQ:BLZE) has already seen its stock price surge by more than 100%, and is currently trading around $31 a share. Apparently, the market appreciates the already large and still growing opportunities the cloud storage specialist is working to address.

Is there still time for investors to jump into that growth story? Let’s find out.

Simplified cloud storage capabilities

Backblaze has two products that leverage its cloud storage infrastructure. 

Its backup solution allows users to back up an unlimited amount of data from their desktops and laptops to the cloud, sometimes referred to as data protection-as-a-service (DPaaS). Management anticipates the DPaaS market should grow at a compound annual growth rate (CAGR) of 19% through 2025 to reach $11 billion a year.

Its other product, B2 cloud storage, allows employees to store their files, develop applications, and collaborate, also known as infrastructure-as-a-service (IaaS). IaaS addresses a larger opportunity that should grow at a CAGR of 27% through 2025 to top $54 billion annually.

Of course, such attractive markets also involve a strong competitive environment that includes the larger cloud storage players such as Amazon Web Services (AWS) and Microsoft‘s Azure, among others. But Backblaze developed differentiated offerings thanks to its simplified structure and lower prices relative to competitors. Its self-service products also better suit individual users, as well as small- and medium-sized enterprises. As a result, the company managed to accumulate approximately 500,000 paying customers at the end of the last quarter.

Because of its low prices, Backblaze generated modest revenue of $31.5 million during the first half of 2021, up 24.7% year over year, boosted by the strong 60.3% growth of its IaaS offering to $10.1 million. Its larger DPaaS business grew only 12.2% year over year to $21.1 million.

The company has been investing in its infrastructure and offerings to support its growth and gain scale. As a result, operating leverage hasn’t materialized yet. Net losses increased to $6.1 million during the first half of this year, compared to a $1.3 million loss in the prior-year period.

Intensifying competition

With the surge in the stock price over the last several days, the company’s market cap sits at roughly $912 million, which corresponds to 16.7 times trailing-12-month sales.

At such a rich valuation, the market is already anticipating Backblaze will provide flawless execution over the next several years to match or exceed the growth of its markets while improving profitability. However, investors should realize the company remains exposed to intensifying competition, given the low barrier to entry simplified cloud storage capabilities represent. 

Here’s an illustration: In addition to the existing competition, the high-growth cloud…