Backblaze (BLZE) Q1 2026 earnings review
B2 Cloud Storage Powers The Pivot, But Legacy Backup Drags
Backblaze delivered a strong Q1, exceeding the top end of its revenue and Adjusted EBITDA guidance. The underlying story is a tale of two businesses: B2 Cloud Storage is thriving on the back of the AI data boom, growing 24% YoY, while the legacy Computer Backup segment is reversing into a 2% decline. Management's strategic upmarket push and cost-discipline are clearly yielding results, driving Adjusted EBITDA margins to an impressive 26% (up from 18% a year ago). FY26 guidance was raised, signaling confidence that the high-growth B2 segment is large enough to carry the company's financial profile forward.
🐂 Bull Case
Adjusted EBITDA margin hit 26% in Q1, blowing past previous guidance. Management raised the FY26 EBITDA outlook to 23-25%, proving that the core infrastructure can scale efficiently as revenue grows.
AI customer count grew 76% YoY. As developers shift to data-heavy multimodal models (video, audio, images), Backblaze is successfully positioning B2 as a high-performance, cost-effective alternative to hyperscalers.
🐻 Bear Case
Computer Backup revenue dropped 2% YoY and its NRR collapsed to 95%. This segment represents 42% of total revenue and acts as a heavy anchor on overall growth.
Despite the booming AI narrative, total Net Revenue Retention (NRR) slipped to 103% from 105% a year ago under the new single-quarter methodology, highlighting broader platform churn or reduced expansion outside of top AI customers.
⚖️ Verdict: 🟢
Bullish. The legacy backup drag is a known issue, but B2 Cloud is now the dominant revenue stream. Profitability is accelerating faster than expected, and upmarket AI wins validate the company's technical positioning.
Key Themes
AI Shift to Multimodal Driving Exabyte Demand
The broader macro replatforming of AI infrastructure is accelerating. Management noted a distinct shift from text to multimodal AI (video, image generation), which requires exponentially more storage. Two major wins this quarter—an AI training data company and a generative AI video creation company—added $1.5 million in ARR. This macro tailwind is directly feeding the B2 engine.
Upmarket Expansion Accelerating
The go-to-market pivot toward enterprise accounts is working. Customers generating $50,000+ in ARR jumped 51% YoY to 187. This enterprise cohort drove a 72% YoY increase in ARR from large customers, proving Backblaze is no longer just a small-business utility.
Pricing Power and API Fee Elimination
Effective May 1st, Backblaze increased its pay-as-you-go storage pricing while completely eliminating API transaction fees. This strategic product/pricing maneuver simplifies the cost structure for developers and encourages high-transaction AI workloads, while capturing higher base storage margins.
Computer Backup is Reversing
The legacy Computer Backup segment is now actively shrinking. Revenue fell 2% YoY to $16.2M, and ARR was completely flat at $65.2M. More alarmingly, Net Revenue Retention (NRR) for this segment plummeted from 103% in 25Q1 to 95% in 26Q1. This unit is bleeding customers faster than it can upsell them.
Total NRR Decelerating Despite AI Boom
A clear contradiction exists between the explosive AI narrative and the company's overall retention metrics. Management shifted to a single-quarter NRR methodology, which revealed total NRR dropped to 103% from 105% a year ago. Even the celebrated B2 segment reported NRR of 110%, which is solid but highlights that the non-AI long-tail of customers is likely facing budget constraints.
Variable Usage Creates Growth Lumps
B2 revenue growth appears highly dependent on variable consumption. Management specifically noted that excluding one large variable AI customer, underlying B2 growth was a stable 23%. If top AI customers finish training models and pare back compute/storage, Backblaze faces revenue volatility.
Other KPIs
Accelerating. Backblaze changed its RPO methodology to capture multi-year customer commitments, aligning with industry peers. Under this new lens, RPO grew an impressive $31 million YoY, indicating that enterprise customers are increasingly locking into longer-term contracts.
Stable. Adjusted FCF was slightly better than the $(2.1) million reported in 25Q1. While the company is not yet FCF positive for the quarter, the trajectory indicates strict capital discipline as they fund high-growth AI expansion.
Stable. Gross margin held flat at 79% YoY. While hardware and data center costs remain a constant headwind, the company successfully offset them through infrastructure efficiency and economies of scale.
Guidance
Decelerating. The midpoint of $40.0M implies roughly 10% YoY growth, a step down from the 12% delivered in Q1. The Computer Backup segment's ongoing contraction is dragging down the blended growth rate.
Stable. Raised from the prior range of $156.5M - $158.5M. The new midpoint of $162.5M implies roughly 11% YoY growth for the full year.
Accelerating. A significant raise from the initial 19% - 21% guidance. This proves management is successfully flowing incremental B2 revenue directly to the bottom line, demonstrating strong operating leverage.
Key Questions
Computer Backup Floor
With Computer Backup NRR falling to 95% and revenue contracting 2% YoY, where do you see the floor for this segment? At what point does it become a distraction from the B2 cloud strategy?
Pricing Strategy Impact
You increased pay-as-you-go storage pricing on May 1st while eliminating API transaction fees. How much of the FY26 guidance raise is purely attributed to this pricing lever versus organic volume growth?
AI Customer Concentration
Two new AI clients added $1.5M in ACV this quarter. What percentage of your total B2 revenue is now concentrated in your top 10 AI customers, and how are you managing the risk of usage volatility?