Backblaze Responds to Claims of ‘Sham Accounting’ From Sketchy ‘Research’ Firm ⇥ arstechnica.com

In March, a firm named Morpheus Research published its first report examining Solaris Energy and taking a short position against it. Last week, they published their second report alleging a massive financial scam is brewing at Backblaze. Again, they are shorting Backblaze stock.

There is no information about who is behind Morpheus Research, only an about page saying it is a “team of financial analysts dedicated to exposing fraud and corporate misconduct in financial markets”. That is one clumsy sentence. The domain was only registered in February, and I cannot find any clues about who is behind it aside from a tweet indicating at least some staff used to work at Hidenburg Research before it was shut down earlier this year.

Nevertheless, perhaps it is possible to assess the report on its merits. The facts are not dependent on who is behind it or what interest they have. The gist of its arguments is that Backblaze bet on enterprise storage, but was undercut by a competitor. The company has been consistently unprofitable, and its stock-based compensation program has been undermined by massive sales of shares held by executives. Its current financial reports are, allegedly, fraudulent to some extent.

Scharon Harding, Ars Technica:

Ars Technica reached out to Backblaze about its response to concerns about the company’s financials resulting in lost backups. Patrick Thomas, Backblaze’s VP of marketing, called Morpheus’ claims “baseless.” He added:

The report is inaccurate and misleading, based largely on litigation of the same nature, and a clear attempt by short sellers to manipulate our stock price for financial gain.

Thomas also claimed that “independent, third-party reviews” have already found that there have been “no wrongdoing or issues” with Backblaze’s public financial results.

I am worried about this because Backblaze is part of my backup strategy. If it reduces its focus on backups in favour of an enterprise clientele it cannot win, it seems likely both are at risk — assuming Morpheus Research’s findings are in any way accurate. It is possible it arrived at its bet against the company after producing this report; it seems equally possible it created this report to justify a short position by using some cherry-picked quotes. It is a lengthy report that I, like many other readers, do not have time to fully fact-check.

What I do know is I have always been a little bit suspicious of Backblaze. Hacker News commenter klodolph says it well:

I recommend worrying about any service where you don’t pay a fee that scales with usage. This includes Backblaze. Yes, I recommend worrying about Backblaze and I’ve recommended worrying about it for a while.

I have many terabytes backed-up with Backblaze. I entrust it with my precious photos and music collection — the latter was the motivation for my subscription in the first place. But I should have always been more cautious given the company’s flat-rate promise. I simply assumed it would eventually become a tiered system. Now, I feel like I have reason to worry a little more.