Cloud content storage and management platform Box (NYSE:BOX) missed analyst expectations in Q3 FY2023 quarter, with revenue up 11.5% year on year to $249.9 million. Box made a GAAP profit of $9.9 million, improving on its loss of $13.8 million, in the same quarter last year.
Is now the time to buy Box? Access our full analysis of the earnings results here, it's free.
Box (BOX) Q3 FY2023 Highlights:
- Revenue: $249.9 million vs analyst estimates of $251.6 million (0.68% miss)
- EPS (non-GAAP): $0.31 vs analyst estimates of $0.30 (4.39% beat)
- Revenue guidance for Q4 2023 is $256 million at the midpoint, below analyst estimates of $259.2 million
- Free cash flow of $54.9 million, up from $17.9 million in previous quarter
- Gross Margin (GAAP): 74.1%, up from 71.8% same quarter last year
Founded in 2005 by Aaron Levie and Dylan Smith, Box (NYSE:BOX) provides organizations with software to securely store, share and collaborate around work documents in the cloud.
The catch phrase "digital transformation" originally referred to the digitization of documents within enterprises. The growth of digital documents has spurred an explosion of collaboration within and between businesses, which in turn is driving the demand for e-signature and content management platforms.
As you can see below, Box's revenue growth has been mediocre over the last two years, growing from quarterly revenue of $196 million in Q3 FY2021, to $249.9 million.
This quarter, Box's quarterly revenue was once again up 11.5% year on year. But the growth did slow down compared to last quarter, as the revenue increased by just $3.93 million in Q3, compared to $7.58 million in Q2 2023. We'd like to see revenue increase by a greater amount each quarter, but a one-off fluctuation is usually not concerning.
Guidance for the next quarter indicates Box is expecting revenue to grow 9.7% year on year to $256 million, slowing down from the 17.3% year-over-year increase in revenue the company had recorded in the same quarter last year. Ahead of the earnings results the analysts covering the company were estimating sales to grow 11.6% over the next twelve months.
In volatile times like these we look for robust businesses with strong pricing power. Unknown to most investors, this company is one of the highest-quality software companies in the world, and their software products have been the default standard in critical industries for decades. The result is an impressive business that is up an incredible 18,152% since the IPO. You can find it on our platform for free.
What makes the software as a service business so attractive is that once the software is developed, it typically shouldn't cost much to provide it as an ongoing service to customers. Box's gross profit margin, an important metric measuring how much money there is left after paying for servers, licenses, technical support and other necessary running expenses was at 74.1% in Q3.
That means that for every $1 in revenue the company had $0.74 left to spend on developing new products, marketing & sales and the general administrative overhead. Trending up over the last year this is around the average of what we typically see in SaaS businesses. Gross margin has a major impact on a company’s ability to invest in developing new products and sales & marketing, which may ultimately determine the winner in a competitive market, so it is important to track.
Key Takeaways from Box's Q3 Results
With a market capitalization of $3.87 billion Box is among smaller companies, but its more than $402.6 million in cash and positive free cash flow over the last twelve months give us confidence that Box has the resources it needs to pursue a high growth business strategy.
Free cash flow came in strong this quarter. On the other hand, it was unfortunate to see that Box slightly missed analysts' revenue expectations. Overall, this quarter's results were not the best we've seen from Box. The company is down 1.09% on the results and currently trades at $27.1 per share.
Box may have had a tough quarter, but does that actually create an opportunity to invest right now? It is important that you take into account its valuation and business qualities, as well as what happened in the latest quarter. We look at that in our actionable report which you can read here, it's free.
One way to find opportunities in the market is to watch for generational shifts in the economy. Almost every company is slowly finding itself becoming a technology company and facing cybersecurity risks and as a result, the demand for cloud-native cybersecurity is skyrocketing. This company is leading a massive technological shift in the industry and with revenue growth of 70% year on year and best-in-class SaaS metrics it should definitely be on your radar.
The author has no position in any of the stocks mentioned.