Will Box Be Profitable In 2016?

  • Shareholders have suffered significant losses from the Box IPO.
  • Their CEO claims that the company's negative operating margin will turn to positive cash flow by the fourth quarter of 2016.
  • If revenues continue to climb and Box can turn positive cash flow then it presents a huge opportunity for investors, however timing is important.

Investors who got in on the Box IPO last year have been seriously burned as the stock has tumbled nearly 60%. With an operating margin of -70%, it raises the question whether Box (NYSE:BOX) will ever be profitable, or if their business is even viable.
BOX stock chart

Source: BOX stock price chart by amigobulls.com

So what should we expect from Box Q4 earnings report?

During their 3Q earnings report, the company raised their revenue guidance from about $296 million for the fiscal year ending January 2016 to $300 million. This means we can expect approximately $82 million in revenue, which represents an increase of 30% YoY.

Box Revenue

Source: BOX revenue chart by amigobulls.com

Unfortunately, their profitability is lost in their sales and marketing. If you look at the trailing twelve months (TTM) numbers, Box actually carries a nice gross profit margin of 73%. However, the sales, general and administrative costs outweigh their entire revenue leading to a very poor operating margin of -70%. Now although these sales costs are what is driving the company’s revenue, it doesn’t necessarily mean it is the optimal strategy. They try to build a base of paying customers through free accounts which is calculated as part of their marketing expense. Sales have grown through this strategy, but they are still far outspending their top line. To alter the marketing strategy and/or budget would have an unknown effect on the company’s growth and it would almost certainly hinder it.

The one thing that Box does have going for it is their current liquidity situation. They may only have a $172 million book value, but they have $215 million in short-term cash, which exceeds their current liabilities. Combine this with the fact that they only have $40 million in long-term debt and we can see that the company is not strapped for cash. Their balance sheet indicates that they can operate several more quarters with their current strategy before cash will run out.


Source: Yahoo Finance

CEO Aaron Levine said he expects positive cash flow by the fourth quarter of 2016. That would be a huge turn of events which would place their incredibly poor operating margin into the green. And considering the company isn’t too leveraged, it can be a quarter of positive earnings assuming the company doesn’t take on any further debt.

However, I believe that even at the current market capitalization of $1.2 billion, Box is under too much pressure to grow their business. In doing so, I don’t think we’ll see a quarter of positive cash flow this year due to more money being pumped into marketing costs. They are trading at about 4.5X sales, which is reasonable for the industry, but Box stock is trading far above its book value. I don’t think this company will get back to a $1.7 billion valuation until they hit $450 million or so in annual revenue, which could potentially happen by the end of 2016. I’d be hesitant on investing in Box as it is a speculative stock, but the stock can be poised for a breakout towards the end of this year or more likely in 2017.

Nicholas Durante Nicholas Durante   on Amigobulls :
Author's Disclosures & Disclaimers:
  • I do not hold any positions in the stocks mentioned in this post and don't intend to initiate a position in the next 72 hours
  • I am not an investment advisor, and my opinion should not be treated as investment advice.
  • I am not being compensated for this post (except possibly by Amigobulls).
  • I do not have any business relationship with the companies mentioned in this post.
  • See Amigobulls' policy on anonymous authors who use a pseudonym
Amigobulls Disclosures & Disclaimers:

This post has been submitted by an independent external contributor. This author may or may not hold any positions in the stocks discussed. Neither Amigobulls, nor any members of its staff hold positions in any of the stocks discussed in this post. Amigobulls has not verified the author’s positions in the stocks discussed, and does not provide any guarantees in this regard. The author may be paid by Amigobulls for this contribution, under the paid contributors program. However, Amigobulls does not guarantee the authenticity or accuracy of the information provided by the author in this post.

The author may not be a qualified investment advisor. The opinions stated in the post 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.

Amigobulls does not have any business relationship with any of the companies covered in this post. This post represents the views of the author/contributor and may not reflect the views of Amigobulls.

At Amigobulls, we prefer that our authors disclose their real names. However, due to a variety of reasons, author's may prefer otherwise. Recognizing the fact that the ideas conveyed carry greater significance, and to facilitate the dissemination of these ideas, we allow authors to use a pseudonym. However, we do collect the same of details from anonymous authors, as we do from others, like the author's real name and contact information. Of course, this information remains confidential with us, and is not displayed on the site.
Further, to protect the interests of our readers/viewers, anonymous authors are required to make the same set of disclosures as other authors. For more details, you can write to any of our in-house editors at contributions@amigobulls.com.

show more

Comments on this article and BOX stock

Do share this awesome post