Summary
Morpheus Research has released a highly critical short report on Backblaze, Inc. (NASDAQ: BLZE), alleging sustained unprofitability, aggressive insider selling, questionable accounting practices, and the concealment of material legal disputes. The report raises significant concerns about the company’s financial health and governance.
Who is Backblaze?
Backblaze is a cloud storage provider offering consumer backup solutions and B2 Cloud Storage for businesses. Founded in 2007 and headquartered in San Mateo, California, the company went public in November 2021. Its revenue is split between its legacy Computer Backup business and its growing B2 Cloud Storage segment, which provides S3-compatible infrastructure services.
Key Points from the Report
Unrelenting Losses and Share Dilution
- Backblaze has not posted a single profitable quarter since going public, accumulating total losses of $181.3 million.
- In Q4 2024 alone, the company reported a loss of $14.4 million.
- Shares outstanding have nearly doubled—from 30.3 million at IPO to over 54 million—largely due to stock-based compensation, which totaled $28.6 million in 2024.
Adjusted Metrics and Accounting Red Flags
- Morpheus highlights that Backblaze redefined its “adjusted free cash flow” metric shortly after introducing it, now excluding restructuring and legal costs.
- The report also accuses the company of capitalizing R&D and fixed asset costs inappropriately to obscure its true cash burn.
- Two former senior finance executives have filed whistleblower lawsuits alleging financial fraud and inflated performance metrics.
Insider Selling and Alleged Conflicts
- Company founders and insiders have sold substantial stock since the IPO, including a planned sale of 10,000 shares per day that led to a sharp drop in the share price.
- The CEO sold $1.6 million in shares shortly before a significant earnings miss, raising concerns about potential insider trading.
- Morpheus alleges that insiders prioritized personal gain while retail investors absorbed mounting losses.
Governance Concerns and Disclosure Failures
- Backblaze has reportedly stopped taking retail investor questions and removed key performance data from public communications.
- Despite serious allegations from whistleblower lawsuits filed in October 2024, the company has not disclosed these proceedings in its filings.
- This lack of transparency has drawn criticism and triggered scrutiny from legal firms and investors.
Legal and Regulatory Scrutiny
- Following the release of the Morpheus report, Backblaze stock dropped over 8%.
- Several law firms have announced investigations into possible securities violations, insider trading, and failure to disclose material events.
- Although Backblaze has denied the allegations and claimed third-party auditors found no evidence of wrongdoing, legal actions are ongoing.
Activ8 Finance Analysis
Morpheus Research presents a compelling argument that Backblaze’s core challenges extend beyond operational inefficiencies. The combination of persistent losses, aggressive dilution, and evolving definitions of financial metrics indicates an attempt to manage investor perception rather than address fundamental issues.
The undisclosed whistleblower lawsuits, in particular, reflect poorly on governance and transparency. When paired with insider selling and the withholding of key metrics, the optics are damaging, regardless of whether the legal claims prove valid.
Backblaze’s projected breakeven in late 2025 may offer a distant light, but until then, the financial and reputational risks appear significant. Investors would be prudent to closely watch how these legal proceedings develop and whether the company takes meaningful steps to improve disclosure and accountability.