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Box (NYSE:BOX) Posts Better-Than-Expected Sales In Q3, Stock Soars


Full Report / November 30, 2021
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Cloud content storage and management platform Box (NYSE:BOX) reported Q3 FY2022 results beating Wall St's expectations, with revenue up 14.3% year on year to $224 million. Guidance for next quarter's revenue was $228 million at the midpoint, 2.26% above the average of analyst estimates. Box made a GAAP loss of $13.8 million, down on its loss of $5.28 million, in the same quarter last year.

Box (BOX) Q3 FY2022 Highlights:

  • Revenue: $224 million vs analyst estimates of $218.6 million (2.48% beat)
  • EPS (non-GAAP): $0.22 vs analyst estimates of $0.21 (5.26% beat)
  • Revenue guidance for Q4 2022 is $228 million at the midpoint, above analyst estimates of $222.9 million
  • Free cash flow of $31.2 million, roughly flat from previous quarter
  • Gross Margin (GAAP): 71.8%, up from 71% 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 acceleration of digital transformation initiatives by enterprises, coupled with the growing volume of electronic documents generated by businesses are important factors that are driving the demand for 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 slower over the last year, growing from quarterly revenue of $196 million, to $224 million.

Box Total Revenue

This quarter, Box's quarterly revenue was once again up 14.3% year on year. But the growth did slow down compared to last quarter, as the revenue increased by just $9.55 million in Q3, compared to $12 million in Q2 2022. We'd like to see revenue increase by a greater amount each quarter, but a one-off fluctuation is usually not concerning.

Analysts covering the company are expecting the revenues to grow 10.2% over the next twelve months, although estimates are likely to change post earnings.

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 71.8% in Q3.

Box Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.71 left to spend on developing new products, marketing & sales and the general administrative overhead. This is around the lower 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 $3.66 billion Box is among smaller companies, but its more than $708.2 million in cash and positive free cash flow over the last twelve months put it in a very strong position to invest in growth.

Box's revenue guidance for the next quarter looks quite a bit better than what the analysts were expecting. And we were also excited to see that it outperformed analysts' revenue expectations. On the other hand, revenue growth is overall a bit slower these days. Zooming out, we think this was a decent quarter, showing the company is staying on target. The company is up 5.03% on the results and currently trades at $24.63 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 while its bountiful generation of free cash flow empowers it to invest in growth initiatives, unfortunately gross margins aren't as good as other tech businesses we look at.

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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