Box Inc. (NYSE: BOX), the cloud content management platform company, has a slew of competition. The field is muddled, and Box is small enough in terms of revenue that its stock price has been hammered. It will need to prove a great deal to investors before Wall Street will jump back in.
Its stock has underperformed the S&P 500 by a substantial margin. Box shares are down almost 25% in the past year. Over that same period, the S&P is higher by 7%, after the recent market plunge. Recent earnings have been disappointing enough that a near-term recovery for Box will be difficult.
What Does Box Do?
Box says its strengths are in content management systems, end-to-end data protection, collaboration on content with its partners and the automation of workflow.
At the highest end of its customer products, which are known as enterprise clients, it offers custom applications, processes development, password policy enforcement and document watermarking.
Box serves several content-driven verticals. These include the financial sector, government, media and entertainment, health care and construction.
The Box Pricing Model
Box offers several levels of services. The lower end three are very low priced.
The “starter” product has a $5 a month license. Customers can test it for a 14-day trial. Box also has a “business” version of its product, which has a base price of $15 per user per month. This includes data loss protection, unlimited users, custom branding and integration with enterprise mobility management providers.
The “business premium” version is priced at $25 a month. It includes metadata and custom templates, device trust (advanced mobile requirements) and full content visibility and management. This allows users to add compliance features.
The “enterprise” version of the product is priced on a custom basis.
Box uses a very basic price pitch. It offers immediate discounts. People save money when they pay annually. Customers can use credit cards for products bought both over the phone or online. The Box website allows people to order in over a dozen languages.
A Cratered Stock
Box’s 25% share price drop has the stock trading in the same neighborhood as at the beginning of 2017. Shares rallied considerably in May 2018, but they have dipped off and on since. The current median price target among nine analysts is $18, a couple of bucks higher than where the shares trade now.
Most recently, Canaccord Genuity and Berenberg each rated the stock at Hold. JMP Securities and JPMorgan downgraded Box.
Analysts also forecast slow growth this year and next. The consensus estimate is up only 14% for 2020 and 11% for next year. If Box was ever a growth stock, those days are over. Analysts are clearly tremendously skeptical.
Who Competes With Box?
Among Box’s challenges is its sheer number of competitors. Some, like Dropbox and WordPress, are startups with huge customer bases. These two, and others in the industry, have platform enabling systems.
More difficult for Box, Microsoft and Google are competitors as well. Each has almost unlimited capital, brand recognition, massive research and development, and existing customer bases. Microsoft’s SharePoint is currently considered the industry leader.
CSI Market recently reported that Box’s market share is only 20% of the current market. With its slow growth rate, this could easily fall.
One problem for all these companies, particularly Box and other midsized players, is that they have no “economic moat,” as Morningstar recently pointed out. Some portions of the industry are commoditized, which makes holding prices difficult.
Why Earnings Worry Investors
Box reported a loss in its most recent quarter. Revenue growth was slightly better than expected. It also raised its full-year forecast. However, the shares hardly surged with any permanence after the news.
Box reported revenue of $177.2 million for the third quarter of last year, up 14% year over year. The GAAP operating loss for the period was $39.2 million, which was 22% of revenue. This compared to a GAAP operating loss of $39.5 million, which was 25% of revenue, in the third quarter the year before.
Box had a $0.28 loss in the quarter. The company ended the quarter with just over $200 million on its balance sheet.
The near-term forecast was lackluster. Revenue was projected to be in the range of $181 million to $182 million. The GAAP net loss per share was forecast to be in the range of $0.22 to $0.21
When Box announced the figures, CEO Aaron Levie said, “With these solid results and our delivery of key product and go-to-market initiatives, we are in a strong position to continue to improve our balance between growth and profitability.” Unfortunately for investors, Box is barely growing, not profitable and unlikely to be profitable soon.
24/7 Wall St.As it announced earnings, Box management also announced a slew of integrations and partnerships with companies that included Adobe Acrobat, Microsoft Teams and Slack. A partnership with IBM’s Watson operation was added as well. Unfortunately, none of these carried dollar signs.
What’s Up With Box’s Management and Board?
Box released its definitive proxy statement (DEF 14A) last May. The company listed nine board members, one of whom left after the annual meeting. Among those on the board is co-founder Dylan Smith, who is the chief financial officer.
A number of the board members are venture capitalists. Rory O’Driscoll, who has been on the board for a decade, is the lead independent director.
Directors are paid well. All made over $200,000 in the last reported year. Kim Hammonds made almost $375,000, and Sue Barsamian made $469,000.
The two co-founders are very well paid. CEO Levie made $3.3 million. CFO Smith made $2.4 million. Levie owns 3.6% of the Class A shares. Smith owns 1.6%.
Three institutions own sizable chunks. The Vanguard Group holds 9.9%, Bares Capital Management owns 6.6% and BlackRock owns 6.7%.
What’s Next?
What has to trouble investors is that Box can neither grow rapidly nor make money soon. It is in a classic commodity business. While the Box may not be terribly expensive to run, it is in an industry in which the pricing is a race to the bottom.
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