Box IPO A Big Hit, But Don't Jump In Yet

  • The much delayed Box IPO is a big hit.
  • Box shares jumped 66% on trading debut.
  • Tough business conditions and steep valuations make Box a risky bet.

The Box IPO has finally come to fruition after a very long wait, and it sure has done very well. So, after the Box IPO trading debut and the 66% pop, it’s time to plug in those numbers and re-evaluate the situation. A little heads up, our call is that you might want to sit out of this very enticing rally, if you’re one of those who goes strictly by fundamentals.

Box IPO Summary

  • Box IPO date - 23 Jan 2015
  • Box IPO share price - $14 a share
  • Box Stock price movement on debut - Up 66%
  • Box stock price - $23.23 (end of 23 Jan 2015 trading session)
  • Box valuation post IPO - $2.78 billion (Box market cap)

The Box IPO Is A Big Hit

As the sun sets on the IPO, Box shares have jumped 66% on trading debut, valuing the cloud storage company at $2.78 billion. Surely, the Box IPO has shaped up like a dream for Box Inc. CEO Aaron Levie and other early stage investors, but it hasn’t turned out too badly for TPG Growth and Coatue Management either.

In July last year, Box valuations stood at $2.4 billion after the company raised $150 million in its last round of funding from TPG and Coatue Management. But on 9 Jan 2015, Box Inc. updated its S-1 filing with the SEC, with the indicative Box IPO share price ranging from $11 to $13 a share. Based on that price range, Box IPO valuations were heavily discounted at $1.5 billion, down by over 35% from its pre IPO valuations.

So, when Box announced that it would go public at an IPO valuation of about $1.5 billion, things did look rather disappointing for investors. However, the IPO has panned out rather impressively, and Box valuations now stand nearly 16% higher than the valuations at which TPG and Coatue Management invested in the company.

Does The Box IPO Make Box A Good Investment?

Box Revenue Growth

We highlighted this in our pre IPO coverage as well, Box revenue growth has slowed in recent quarters. Not only in percentage terms, but also in Dollar terms, if you look at the absolute revenue addition per quarter. Then there’s also mounting competition from the likes of Dropbox, Google (NASDAQ:GOOG) and Micrsosoft (NASDAQ:MSFT) among many others.

Box Profitability

Box is still highly unprofitable and spends $1.8 for every $1 it earns. Box spends almost all of its revenue on sales and marketing, implying that a cut back in these sky high spends could threaten revenue growth. Further, with stiff competition in place, Box may not have the luxury of hiking prices. On the contrary, reports suggest that price wars could result in a further drop in prices.

Box Valuations

Following its trading debut box valuations have nearly doubled from $1.5 billion (Box IPO valuation) to $2.78 (Box market cap). At $23.23 a share, Box valuations translate to a Price to Sales ratio of 14.4, and we think that’s a very steep valuation for a company in the situation that Box is in.

The Box IPO has definitely worked out well for all involved, especially when you consider the fact that it has been delayed for nearly a year. However, investors would do well to tread cautiously with Box.

If you're interested in cloud storage companies, you might also want to see our recent post about the Dropbox IPO. As part of coverage of IPOs due in 2015, we’ve also covered the Square IPO, the Snapchat IPO, the Pinterest IPO, the Airbnb IPO, the Uber IPO and the Spotify IPO.

Vikram Nagarkar Vikram Nagarkar   on Amigobulls :

Neither Amigobulls, nor any members of its staff hold positions in any of the stocks discussed in this post. The author may not be a certified/registered investment advisor, and the opinions expressed should not be treated as investment advice.

Buying and selling of securities carries the risk of monetary losses.Readers/Viewers are advised to carry out their own due diligence and consult their investment advisors before making any investment decisions.

Neither Amigobulls, nor the author have any business relationship with any of the companies covered in this post.

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