Cloud content storage and management platform Box (NYSE:BOX) reported results in line with analysts' expectations in Q2 FY2024, with revenue up 6.27% year on year to $261.4 million. However, next quarter's revenue guidance of $262 million was less impressive, coming in 1.45% below analysts' estimates. Box made a GAAP profit of $10.8 million, improving from its profit of $1.05 million in the same quarter last year.
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Box (BOX) Q2 FY2024 Highlights:
- Revenue: $261.4 million vs analyst estimates of $261.3 million (small beat)
- EPS (non-GAAP): $0.37 vs analyst estimates of $0.35 (5.8% beat)
- Revenue Guidance for Q3 2024 is $262 million at the midpoint, below analyst estimates of $265.9 million
- The company slightly lowered its revenue guidance for the full year and it now stands at $1.04 billion at the midpoint, below estimates of $1.05 billion
- Free Cash Flow of $20.6 million, down 81% from the previous quarter
- Gross Margin (GAAP): 74.4%, in line with the same quarter last year
“While ongoing economic factors have affected our customers’ IT budgets and put pressure on our projected fiscal 2024 growth rate, we remain committed to our long-term revenue growth targets as we continue to drive gross margin and operating margin expansion in FY24 and beyond.”
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.
Sales Growth
As you can see below, Box's revenue growth has been unremarkable over the last two years, growing from $214.5 million in Q2 FY2022 to $261.4 million this quarter.
Box's quarterly revenue was only up 6.27% year on year, which might disappoint some shareholders. However, its revenue increased $9.53 million quarter on quarter, a strong improvement from the $4.58 million decrease in Q1 2024. This is a sign of acceleration of growth and very nice to see indeed.
Next quarter's guidance suggests that Box is expecting revenue to grow 4.82% year on year to $262 million, slowing down from the 11.6% year-on-year increase it recorded in the same quarter last year. Looking ahead, analysts covering the company were expecting sales to grow 7.48% over the next 12 months before the earnings results announcement.
While most things went back to how they were before the pandemic, a few consumer habits fundamentally changed. One founder-led company is benefiting massively from this shift and is set to beat the market for years to come. The business has grown astonishingly fast, with 40%+ free cash flow margins, and its fundamentals are undoubtedly best-in-class. Still, its total addressable market is so big that the company has room to grow many times in size. You can find it on our platform for free.
Profitability
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's left after paying for servers, licenses, technical support, and other necessary running expenses, was 74.4% in Q2.
That means that for every $1 in revenue the company had $0.74 left to spend on developing new products, sales and marketing, and general administrative overhead. Despite the recent drop, Box's gross margin is around the average of a typical SaaS businesses. Gross margin has a major impact on a company’s ability to develop new products and invest in marketing, which may ultimately determine the winner in a competitive market. This makes it a critical metric to track for the long-term investor.
Key Takeaways from Box's Q2 Results
With a market capitalization of $4.42 billion, Box is among smaller companies, but its $445.4 million cash balance and positive free cash flow over the last 12 months give us confidence that it has the resources needed to pursue a high-growth business strategy.
Revenue and EPS in the quarter beat, but beyond that, we struggled to find many strong positives in these results. Billings missed. Revenue and non-GAAP operating profit guidance for next quarter underwhelmed. Full-year revenue guidance was slightly lowered and also missed Wall Street's estimates. Lastly, non-GAAP operating profit for the full year was also below expectations. Overall, the results could have been better. The company is down 8.8% on the results and currently trades at $28.07 per share.
Box may have had a tough quarter, but does that actually create an opportunity to invest right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research 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 50% 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 in this report.