- Box continued to report strong revenue growth.
- Sales & Marketing spends are a long standing worry as losses continue to mount.
- Box guidance for FY 2016 poses a serious threat to Box valuations.
Box (NYSE:BOX) earnings were out post market hours on 11 March 2015. The stock plummeted post earnings partly because some analysts were reportedly using the wrong number of outstanding shares, which led them to arrive at a larger (than actual) loss per share. At large, the Box earnings release didn’t spring any surprises, yet, the reaction it has evoked suggests that the sharp rally post the Box IPO was largely driven by momentum and hype.
Box Earnings Q4 2015 Summary
Box registered strong growth in revenue for the quarter and issued a guidance that met expectations for the upcoming quarter and FY 2016 (Jan 2015 to Jan 2016). The cloud solutions service continued to register huge losses, albeit with small improvements in loss margins.
Sales & Marketing spends continued to eat up a major chunk of the revenue and not much has changed on the valuations front (it’s still unjustifiably expensive). All in all, there isn’t much here to explain why investors are suddenly upset with Q4 Box earnings numbers, as the stock is down by 13.4% in after-hours trade. Fundamentals weren’t great, aren’t great and don’t look like they’ll be great very soon.
Box Revenue Growth
Box revenue for Q4 2015 grew by just over 61% year-on-year to touch $62.6 million. Incrementally over the same quarter a year ago, Box added $23.8 million in Q4, versus a revenue addition of 23.5 million in Q3. Box growth rates have slowed significantly from 97% YoY growth in the year ago quarter. However, YoY absolute revenue addition is still improving for Box.
Like we’ve mentioned in our earlier posts, growth is the cornerstone of Box valuations and the company has delivered the goods in Q4.
Box Losses Continue To Mount
Well, to be fair to Box, pretty much everybody knew this would happen. Nobody expected Box, with its huge losses going into the IPO, to become profitable overnight.
Up until Q3 (last earnings release prior to the IPO), Box was spending 97 Cents on Sales & Marketing for every Dollar it earned in revenue. Also, the company’s loss margins had expanded sequentially in that quarter. Given this backdrop, it’s hard to see why their margins would evoke such a strong reaction from the markets, or why someone would expect numbers that are very different from the ones Box has reported.
Box reported operating and net losses of $45.8 and $46.7 million. The company’s losses translated to an operating loss margin of 73% and a net loss margin of 75%, with both numbers improving by 500 basis points each (5%) sequentially.
|Costs As % of Revenue||Q414||Q315||Q415|
|Revenue ($ million)||38.8||57.0||62.6|
|Cost of Revenue||21%||22%||23%|
|Sales & Marketing expenses||121%||97%||88%|
|General & Admin expenses||26%||30%||33%|
Cost of Revenue has inched up by 1 percentage point in every quarter since Q2 2015. During the same period, R&D costs declined as a percentage of revenue, while G&A costs compensated for the same. The major area of improvement for Box has been its Sales & Marketing (S&M) spends, declining from nearly 1.8X of revenue in April 2012, to 121% a year ago and 88% of revenue in the latest quarter.
In Q4 2015, Box spent 88 Cents on Sales & Marketing for every Dollar of revenue it earned. Bloomberg TV anchor Cory Johnson couldn’t have described the situation better when he said “Now on one hand, that’s ridiculous, on the other hand, it’s the best it’s ever been. So, it’s a bad number that doesn’t stink quite as much.”
Box Revenue Guidance
Box expects to rake in $63 - $64 million in revenue in Q1 2016, growing at 39% to 41% YoY.
For the full year FY 2016, Box has projected a revenue of $281 – 285 million, implying a YoY growth of 30% to 31%. According to Bloomberg, this is in line with analysts’ estimates which pegged Box’s growth at 31% for the year.
If the street isn’t surprised by Box’s revenue guidance, then these numbers are probably not responsible for the reaction post earnings. However, we do see the guidance as one of the two:
- An extremely conservative guidance OR
- Very bad news
Here’s why; Box valuations translate to a Price to Sales ratio of 10.6 at its last closing price (pre-earnings release), and 9.2 if the stock opens 13.4% lower, as suggested by after-hours trading. Either way, those valuations are steep. It may or may not surprise the markets, but if Box growth rates are going to more than halve, these valuations sound outlandish, especially given its profitability or the lack thereof. If this does pan out, Box valuations could see some serious corrections.
Box Earnings Q4 2015: Summing It Up
Box delivered strong growth and the rest of its numbers were more or less in line with its track record. There weren’t any major surprises pertaining to growth or profitability. Box’s S&M expenses scrape out a major chunk of its revenue and could use some toning down. This has been a long standing concern that Box has addressed, but insufficiently.
Box valuations continue to be very expensive and a supporting rationale is beyond us. If Box’s revenue guidance does turn out to be an accurate indication of the year ahead, Box valuations could take a hit, given that Box has projected a sharp slowdown in revenue growth.
You can also see our coverage of upcoming IPOs in 2015, like the Etsy IPO, the Cloudera IPO, the Dropbox IPO, the Spotify IPO, the Snapchat IPO, the Uber IPO, the Airbnb IPO, the Square IPO and the Pinterest IPO among others IPOs in 2015.
Box Earnings Q4 2015 Preview
(Published on 6 March 2015)
- Box earnings are due to 11 March 2015.
- Marketing spends and revenue growth will be under the scanner.
- Box valuations remain steep, making Box a risky investment.
Cloud storage solutions provider, Box is due to report its first set of earnings following the Box IPO. Box, has had investors buckled up for a roller coaster ride since it went public in the penultimate week of Jan 2015. The stock is down by 23% from its peak, which isn’t surprising given the market debut pop of 66%. Now with Box earnings round the corner, our eyes are pinned on 2 key numbers, revenue growth and sales & marketing expenses. In this post, we’ll also take you through the list of Box acquisitions since the IPO, analyst estimates for Box earnings among and Box valuations.
Box Earnings Schedule
- Box Earnings Date: 11 March 2015
- Box Earnings Release: After Market Hours
- Box Earnings Call: 5 PM EDT
Box IPO Pop Weighing On Box Stock Price?
We all know the Box IPO was a resounding success with a first day pop of 66%. That though, might actually be weighing on Box stock performance post the IPO.
We mentioned this in our pre IPO coverage of Box as well. We thought that Box IPO valuations were steep to start with. With the stock garnering some hefty gains post the IPO, valuations shot up even further, making it a very risky bet. It’s no surprise that Box couldn’t sustain those valuations. The stock tanked by over 28% with days of the IPO and has recovered since then to settle at $19.1 a share.
Box Earnings Focus
Like we said earlier, there are a few numbers we’ll be watching out for, starting with Box revenue numbers.
Box Revenue Growth
Box has managed to grow at a fast clip and Box valuations have rested largely on that one aspect of its business. In Q3 2015, Box revenue grew by 70% YoY to touch $57 million. Growth rates slowed from 108% YoY growth in Q3 a year ago. However, in absolute Dollar terms, YoY revenue addition has improved every quarter.
Since this is the first set of Box earnings numbers, there’s no guidance to go by. Going by Box analyst estimates on Yahoo, there probably isn’t enough coverage yet. Estimates indicate expectations of significant slowdown with a 50% YoY growth in Q4 2015. Box investors will be hoping that isn’t the case, because undoubtedly, such a drastic slowdown will hurt Box valuations.
Box Sales & Marketing Spends
Box eventually went public nearly a year after it first filed for an IPO with the SEC. Even as tepid markets forced the cloud solutions provider to delay its IPO, Box did come in for a lot of criticism for its high sales and marketing (S&M) spends. Box has managed to reign in these expenses a tad bit, but it’ll need to do much more to be profitable.
In Q3 2015, Box’s sales and marketing spends stood at 97% of revenue. In the quarter ending Jan 2014, a little prior to the first Box S-1 filing, S&M spends exceeded the company’s revenue at 121% of revenue.
With Box still very much in its growth phase, S&M expenses could remain at elevated levels for some time to come. However, a meaningful dip in these spends will definitely be a positive.
Box Acquisitions Since The IPO
Box has already acquired two start-ups in less than two months since its IPO, taking its tally to 8 acquisitions in total. The latest additions to that list are Airpost and Subspace.
Airpost allows companies to monitor the usage of cloud applications by its employees. Techcrunch reports that this could be a talent acquisition, given that the service was due to be shut down on March 1, following the acquisition.
Subspace comes across as another talent acquisition with the service due to be shut down shortly. Subspace has built a secure browser (containerized browser) focused on enabling access to enterprise software running on the cloud. The service is targeted at employees who use their own devices to access the company’s cloud applications.
The acquisition fits into the scheme of things for Box, as it pushes to extend its customer base among the healthcare and financial services sectors.
Box currently trades at $19.1 a share, translating to a Price to Sales ratio of 11.5. There’s fierce and growing competition in the cloud storage space, and that’s giving companies like Box very little flexibility in terms of pricing.
Pricing pressures don’t make for a great outlook, implying that Box will have to work that much harder to drive its revenue growth. It goes without saying that profitability will be that much more difficult to achieve. Given this scenario and the fact that Box operating margins are still deep in the red at -78%, Box valuations are steep and make the stocky a risky investment.