Backblaze's B2 Growth Accelerates, but Margin Headwinds Keep Thesis Unchanged

What happened

A new Seeking Alpha article reiterates a Buy rating with a $16 price target, citing B2 revenue growth of 34% in Q2 2026 (core growth ~26% excluding price increases) and strengthening AI contracts such as CoreWeave. The article acknowledges that gross margins will face near-term pressure as infrastructure investments precede revenue recognition, causing negative free cash flow for several quarters. The DeepValue master report maintained a WAIT rating with a base implied value of $14, emphasizing the need for CoreWeave revenue recognition to be clarified and included in guidance, as well as confirmation that B2 retention holds after the May 2026 price increase. While the reported B2 acceleration is encouraging, the current share price near $14.60 already embeds a fast AI/neocloud ramp that has not yet been fully de-risked. The key unresolved items remain the treatment of CoreWeave revenue and the sustainability of B2 net revenue retention following the pricing change.

Implication

Investors should monitor the Q2 2026 report for actual B2 revenue growth of 34% and gross margin trends, distinguishing accounting-driven margin lift from unit economics. If B2 net revenue retention remains near 110% after the May price increase and CoreWeave revenue recognition is clarified and added to FY2026 guidance, the thesis strengthens and a re-rating toward the bull case is possible. Conversely, if CoreWeave remains excluded from guidance due to unresolved recognition or if margins compress more than expected, the current valuation leaves no margin of safety, given an EV/EBITDA of 237.5x and negative free cash flow projected for several quarters. Liquidity constraints, including a minimum cash deposit requirement of $10.0m with the lender, could force dilution if covenant pressure emerges. Therefore, we maintain a WAIT stance, with attractive entry near $10 or on clear evidence of de-risking on the two key gating items.

Thesis delta

The new data showing B2 growth acceleration to 34% and large enterprise contract momentum modestly strengthens the bull case. However, it does not change the core gating items: CoreWeave revenue recognition is not yet in guidance and margins will be temporarily pressured. The thesis shifts slightly positive but remains WAIT pending auditable proof of monetization and retention.