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Box (NYSE:BOX) Reports Q3 Revenue Slightly Under Analyst Estimates


Full Report / November 30, 2022
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Cloud content storage and management platform Box (NYSE:BOX) fell short of 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.

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 world is shifting away from physical storage and content sharing methods that made it difficult for employees to securely collaborate and share data at work. Box has helped accelerate this shift through its cloud-based content management and collaboration software platform.

For example, when preparing a presentation, employees can use software provided by Box to collaboratively make edits, updates and comments via a user-friendly cloud-based interface. The presentation can be accessed from mobile and desktop devices from any location. Box has also invested in securing the transfer and sharing of sensitive documents which enables it to address highly sensitive verticals such as finance and healthcare.

Box started with offering cloud storage as a simple way for employees to share content more securely, but has since expanded into new functions such as e-signatures, monitoring anomalous behaviour and workflow management.

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 might have guessed, Box has plenty of competitors, such as DocuSign (NASDAQ:DOCU), Dropbox (NASDAQ:DBX), Google Drive (NASDAQ:GOOG) and Microsoft OneDrive (NASDAQ:MSFT).

Sales Growth

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.

Box Total Revenue

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.

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 is left after paying for servers, licenses, technical support and other necessary running expenses was at 74.1% in Q3.

Box Gross Margin (GAAP)

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.

Cash Is King

If you have followed StockStory for a while, you know that we put an emphasis on cash flow. Why, you ask? We believe that in the end cash is king, as you can't use accounting profits to pay the bills. Box's free cash flow came in at $54.9 million in Q3, up 75.9% year on year.

Box Free Cash Flow

Box has generated $197 million in free cash flow over the last twelve months, an impressive 20.3% of revenues. This extremely high FCF margin is a result of Box asset lite business model and strong competitive positioning, and provides it the option to return capital to shareholders while still having plenty of cash to invest in the business.

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 put it in a very strong position to invest in growth.

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.

Is Now The Time?

When considering Box, investors should take into account its valuation and business qualities, as well as what happened in the latest quarter. We cheer for everyone who is making the lives of others easier through technology, but in case of Box we will be cheering from the sidelines. Its revenue growth has been weak, and analysts expect growth rates to deteriorate from there.

Box's price to sales ratio based on the next twelve months is 3.8x, suggesting that the market does have lower expectations of the business, relative to the high growth tech stocks. While we have no doubt one can find things to like about the company, and the price is not completely unreasonable, we think that at the moment there might be better opportunities in the market.

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