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No Surprises In Box's (NYSE:BOX) Q2 Sales Numbers, Next Quarter Growth Looks Optimistic


Full Report / August 25, 2021
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Cloud content storage and management platform Box (NYSE:BOX) reported results in line with analyst expectations in Q2 FY2022 quarter, with revenue up 11.5% year on year to $214.4 million. Box made a GAAP loss of $8.7 million, down on its loss of $7.65 million, in the same quarter last year.

Box (BOX) Q2 FY2022 Highlights:

  • Revenue: $214.4 million vs analyst estimates of $213 million (small beat)
  • EPS (non-GAAP): $0.21 vs analyst estimates of $0.19 (11.6% beat)
  • Revenue guidance for Q3 2022 is $218.5 million at the midpoint, above analyst estimates of $217 million
  • The company lifted revenue guidance for the full year, from $849 million to $858 million at the midpoint, a 1.06% increase
  • Free cash flow of $29.8 million, down 60.7% from previous quarter
  • Gross Margin (GAAP): 71.6%, up from 69.8% previous quarter

Founded in 2005 by Aaron Levie and Dylan Smith, 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 solid over the last year, growing from quarterly revenue of $192.2 million, to $214.4 million.

Box Total Revenue

This quarter, Box's quarterly revenue was once again up 11.5% year on year. We can see that the company increased revenue by $12 million quarter on quarter. That's a solid improvement on the $3.52 million increase in Q1 2022, so shareholders should appreciate the re-acceleration of growth.

Analysts covering the company are expecting the revenues to grow 10.4% over the next twelve months, although we would expect them to review their estimates once they get to read these results.

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, licences, technical support and other necessary running expenses was at 71.6% in Q2.

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. Significantly up from the last quarter, 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 Q2 Results

With a market capitalization of $4 billion Box is among smaller companies, but its more than $779.4 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.

It was good to see Box improve their gross margin this quarter. And we were also glad that the revenue guidance for the next quarter exceeded analysts' expectations. On the other hand, revenue growth is overall a bit slower these days. Zooming out, we think this was still a decent, albeit mixed, quarter, showing the company is staying on target. The company is down -3.24% on the results and currently trades at $24.8 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 believe that rate will remain roughly steady. 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 4.6, 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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