Cloud content storage and management platform Box (NYSE:BOX) reported results in line with analyst expectations in Q4 FY2023 quarter, with revenue up 9.91% year on year to $256.5 million. However, guidance for the next quarter was less impressive, coming in at $249 million at the midpoint, being 4.32% below analyst estimates. Box made a GAAP profit of $20.5 million, improving on its loss of $4.33 million, in the same quarter last year.
Box (BOX) Q4 FY2023 Highlights:
- Revenue: $256.5 million vs analyst estimates of $256.5 million (small miss)
- EPS (non-GAAP): $0.26 vs analyst expectations of $0.34 (24% miss)
- Revenue guidance for Q1 2024 is $249 million at the midpoint, below analyst estimates of $260.2 million
- Management's revenue guidance for upcoming financial year 2024 is $1.06 billion at the midpoint, missing analyst estimates by 3.82% and predicting 6.47% growth (vs 13.5% in FY2023)
- Free cash flow of $74.7 million, up 35.8% from previous quarter
- Gross Margin (GAAP): 76.2%, up from 72.3% 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).
As you can see below, Box's revenue growth has been mediocre over the last two years, growing from quarterly revenue of $198.9 million in Q4 FY2021, to $256.5 million.
Box's quarterly revenue was only up 9.91% year on year, which might disappoint some shareholders. We can see that the company increased revenue by $6.53 million quarter on quarter accelerating up on $3.94 million in Q3 2023.
Guidance for the next quarter indicates Box is expecting revenue to grow 4.43% year on year to $249 million, slowing down from the 17.8% year-over-year increase in revenue the company had recorded in the same quarter last year. For the upcoming financial year management expects revenue to be $1.06 billion at the midpoint, growing 6.47% compared to 13.3% increase in FY2023.
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 76.2% in Q4.
That means that for every $1 in revenue the company had $0.76 left to spend on developing new products, marketing & sales and the general administrative overhead. Significantly up from the last quarter, this is a good gross margin that allows companies like Box to fund large investments in product and sales during periods of rapid growth and be profitable when they reach maturity.
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 $74.7 million in Q4, up 124% year on year.
Box has generated $238.4 million in free cash flow over the last twelve months, an impressive 24.1% 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 Q4 Results
With a market capitalization of $4.77 billion Box is among smaller companies, but its more than $461.2 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.
Revenue in the quarter missed slightly, and billings missed by a larger amount. It was good to see Box improve their gross margin this quarter. That feature of these results really stood out as a positive. On the other hand, it was unfortunate to see that Box's revenue guidance for the full year missed analysts' expectations and the revenue guidance for next year indicates quite a significant slowdown in growth. Overall, this quarter's results were not the best we've seen from Box. The company is down 10.7% on the results and currently trades at $30 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 4.6x, 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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