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Russian (RU) Ricardo Pillai
Fri, Jun 6, 2025, 12:23 PM 2 min read
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We came across a bearish thesis on Backblaze, Inc. (BLZE) on Substack by Morpheus Research. In this article, we will summarize the bear’s thesis on BLZE. Backblaze, Inc. (BLZE)'s share was trading at $5.65 as of 29th May.'
A close-up of a server running a cloud-native platform, symbolizing the power of the software-as-a-service (SaaS) business area.
Backblaze (NASDAQ: BLZE), a $250 million California-based cloud storage provider, has struggled significantly since its 2021 IPO. Divided into B2 Cloud Storage and Computer Backup segments, the company has posted continuous losses, seen an 80% increase in share count, and suffered a 71% decline in stock price.
In 2024, two former senior employees filed lawsuits alleging accounting fraud, inflated projections, and retaliation, revealing internal dissent. These included claims that founders aggressively sold shares post-IPO lock-up against capital markets advice, exacerbating stock declines. A particularly damning internal email from co-founder Brian Wilson rationalized share sales even if the stock hit zero, just before his resignation.
The lawsuits also allege pressure on employees to certify misleading financials. Former FP&A director Huey Hall refused to sign reports containing misstated capitalized R&D and equity accounting. Former VP of Investor Relations James Kisner corroborated these claims, citing CFO-inflated cash flow forecasts sent to auditors to avoid a “going concern” warning—forecasts Kisner reported to the board, prompting a secret internal investigation. Founders allegedly continued selling shares during this period, while others timed sales to avoid public disclosures. Despite CEO Gleb Budman's stated commitment to transparency, he too sold $1.6 million in shares while possessing material non-public information.
Backblaze’s financial practices raise further red flags with high rates of capitalized software costs—five times higher than peers. Amid fierce competition from Wasabi, customer losses, and exaggerated AI marketing, Backblaze’s restructuring appears superficial. The company now embodies the narrative of a failed growth story sustained by questionable financial tactics and insider exits.
Backblaze, Inc. (BLZE) is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 19 hedge fund portfolios held BLZE at the end of the fourth quarter which was 20 in the previous quarter. While we acknowledge the potential of LYFT as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and have limited downside risk. If you are looking for an extremely cheap AI stock that is also a major beneficiary of Trump tariffs and onshoring, see our free report on the best short-term AI stock.
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