Backblaze Q3 2026: Focus Paying Off as B2 Growth Accelerates

By the Numbers

• Total revenue: $46.7 million, up 26% year over year
• B2 Cloud Storage revenue: $30.5 million, up 47%
• B2 ARR: $126.8 million, up 53%
• B2 net revenue retention: 115%, up from 113% in Q2
• Gross margin: 64%, up from 62% a year earlier
• Adjusted EBITDA margin: 33%, up 10 percentage points year over year
• FY2026 revenue guidance: $177.8 million to $178.2 million, raised $5 million at the midpoint

Key Highlights

• B2 revenue growth accelerated from 34% in Q2 to 47% in Q3, the strongest rate in 10 quarters. The May price increase contributed approximately 12 percentage points; excluding pricing, organic growth accelerated from 26% to 35%.
• Backblaze signed four agreements exceeding $500,000 in annual recurring revenue, bringing the year-to-date total to 11. Three of the Q3 agreements involved AI builders expanding existing relationships.
• Customer acquisition and expansion improved across segments. Net new B2 self-service customers increased approximately fourfold year over year, while customers generating more than $50,000 in ARR reached 254, up 57%.
• CoreWeave and another large neocloud customer began ramping deployments but contributed little to Q3 growth. Management expects approximately 60% B2 revenue growth in Q4 and reaffirmed its outlook for more than 40% growth in 2027.
• Adjusted EBITDA margin reached 33%, above management's 27%-29% guidance. The company expects depreciation from its contracted capacity expansion to temporarily reduce GAAP gross margins by three to six percentage points as infrastructure enters service ahead of revenue.
• Capital requirements are substantial, with Q4 property, plant, and equipment expenditures projected at approximately $65 million to $83 million. Backblaze ended Q3 with $230 million in cash, equivalents, and marketable securities following its convertible financing.

The News

Backblaze reported third-quarter 2026 results on November 2, with revenue increasing 26% year over year to $46.7 million and B2 Cloud Storage revenue growing 47% to $30.5 million. The company exceeded revenue and adjusted EBITDA guidance, raised its full-year outlook, and reported growth across self-service customers, AI builders, and larger sales-led accounts. Management expects B2 growth to accelerate in Q4 as its contracted neocloud deployments begin contributing more substantially, with the infrastructure expansion extending through 2027. For more information, see the official Backblaze earnings announcement. (https://ir.backblaze.com/news/news-details/2026/Backblaze-Announces-Third-Quarter-2026-Financial-Results/default.aspx)

Analyst Take

Backblaze's third-quarter results show the commercial returns from a strategy built around scalable, economical object storage. The company has spent two decades refining its storage architecture, infrastructure efficiency, and operating model. AI infrastructure providers and developers now represent a substantial market for those capabilities, and the company is capturing demand across both groups while retaining its established backup, media, and enterprise workloads.

The clearest evidence is the acceleration in organic B2 growth from 26% in Q2 to 35% in Q3, excluding the May price increase. Reported growth reached 47%, its strongest rate in 10 quarters, with limited contribution from CoreWeave and another large neocloud agreement. The quarter comprises underlying customer expansion and new business across the existing B2 platform, with additional contracted capacity demand still entering production.

Four agreements exceeding $500,000 in ARR brought the year-to-date total to 11, while three existing AI builders more than doubled their original commitments within a year. The fourfold increase in net new self-service customers and growth among larger accounts indicate progress across the acquisition and expansion model described at September's Investor Day. AI builders are already generating significant storage requirements as training, inference, and applications create data that must be retained, accessed, and reused.

Infrastructure providers initially concentrate on power, facilities, and GPUs, then add services that support customers' complete AI workflows. Capacity storage becomes part of that progression. Backblaze has secured large multiyear commitments from CoreWeave and another unnamed neocloud customer, with both deployments beginning to ramp and more substantial revenue expected in 2027. This aligns with the company's positioning as an independent capacity tier serving AI infrastructure providers that need storage expertise and scale.

The CoreWeave agreement also demonstrates the flexibility of Backblaze's operating model. Approximately 70% of the $335 million contract involves Backblaze-funded capacity in its own data centers, while 30% uses its managed storage platform in CoreWeave facilities with customer-funded hardware. As might be expected, the latter should deliver higher gross margins. Reciprocal minimum commitments support the Backblaze-hosted deployment, with capacity delivery and contracted consumption ramping through July 2027. That arrangement provides revenue visibility but places considerable responsibility on Backblaze to procure, deploy, and operate infrastructure at the required scale. During Q&A, Budman confirmed that Backblaze continues pursuing additional neocloud customers while prioritizing delivery against existing commitments.

Management illustrated the model with a hypothetical $150 million increase in ARR requiring approximately $300 million in capital expenditures and generating roughly $1 billion in cumulative revenue over the lifetime of the infrastructure, equivalent to about 3.3 times the initial capital investment before operating costs and other expenses. Depreciation will precede some customer revenue, pressuring gross margins during the buildout. Hardware availability, data center capacity, and CoreWeave's financial and operational commitments remain relevant risks despite management's confidence in the deployment.

Our earlier research examined Backblaze's competitive position, its embedded infrastructure model with CoreWeave, and its two-tier AI data architecture with WEKA. Those developments demonstrate how the company extends the reach of its object storage platform through specialized infrastructure services and complementary partners. The WEKA relationship remains an architectural opportunity whose commercial contribution has yet to be established.

Backblaze's focus is producing measurable growth, customer expansion, and operating leverage. The quarter advances the competitive thesis we raised in March, while the coming infrastructure investment cycle will determine how effectively that advantage translates into cash generation and sustained returns.

What Was Announced

Backblaze reported record quarterly revenue of $46.7 million, approximately $2 million above the high end of guidance. CFO Marc Suidan attributed the outperformance to direct sales bookings, self-service customer growth, and lower-than-expected churn. B2 revenue increased 47% year over year, with organic growth of 35% after excluding the May price increase. B2 ARR reached $126.8 million, with net revenue retention improving to 115%. Computer Backup revenue declined 2% year over year to approximately $16 million but increased sequentially as retention and acquisition initiatives stabilized the business.

CEO Gleb Budman described storage demand expanding faster than customers' own forecasts. AI training requires larger datasets, while checkpoints, logs, inference outputs, and agentic applications create additional data for retention and reuse. Budman compared storage tiering with the use of model routers and multiple AI clouds, describing how customers can optimize storage placement and improve returns on their AI infrastructure investments.

Backblaze signed four agreements exceeding $500,000 in ARR during Q3, including three expansions involving existing AI builders. A training data provider that previously committed nearly $1 million and subsequently expanded by more than $1 million signed another agreement exceeding $4 million in ARR for a new B2 workload. A generative AI media company expanded its training-related storage commitment, while an AI voice provider is connecting its GPU provider's compute directly to Backblaze. All three more than doubled their original commitments within a year. A global networking technology company signed the fourth agreement, approximately $500,000 in ARR, for the Powered by Backblaze white-label offering.

New AI builder pipeline additions doubled sequentially in Q3, while visits referred by AI search engines increased 230% year over year. Budman said those visitors converted into self-service accounts or sales inquiries at more than twice the rate of conventional organic-search visitors. Backblaze's nearly 13 years of Drive Stats publications contribute to its visibility in AI-generated search results. Its Flamethrower startup program now includes hundreds of companies, and the company introduced an open-source B2 MCP Server enabling AI agents to access storage under customer-defined permissions.

On AI infrastructure deployments, management reported that hardware allocations are secured and shipments are tracking ahead of schedule. Development work for the large neocloud customer announced earlier in 2026 finished ahead of plan, allowing the customer to begin loading data several months earlier than originally expected. CoreWeave also began ramping.

Looking Ahead

Management expects approximately 60% year-over-year B2 revenue growth in Q4 2026 and reaffirmed its outlook for growth exceeding 40% in 2027. Its 2026 guidance excludes potential new agreements exceeding $500,000 in ARR and variable consumption above contracted minimums.

CoreWeave's Backblaze-hosted capacity is scheduled to reach its contracted minimum run rate in July 2027, with the managed storage component contributing later. Both large neocloud agreements are expected to contribute more substantially during the first half of 2027.

Backblaze projects $65 million to $83 million in property, plant, and equipment expenditures during Q4, subject to hardware delivery schedules, with continued investment over the following four to five quarters. Management expects depreciation ahead of customer revenue to temporarily reduce GAAP gross margin by three to six percentage points, followed by recovery as utilization increases.

We will monitor capacity delivery, utilization, cash generation, and gross-margin recovery as Backblaze fulfills its contracted neocloud commitments. We will also watch which neoclouds and AI builders emerge as named customers in the coming quarters. Their business models, workloads, and stages of development should provide insight into when AI companies begin seeking a dedicated object storage capacity tier and how that requirement evolves as they scale. Conversion of the AI builder pipeline into recurring revenue and commercial adoption through WEKA and other ecosystem partnerships will provide additional measures of execution.