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.
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
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 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.
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.
Cash Is King
If you've followed StockStory for a while, you know that we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can't use accounting profits to pay the bills. Box's free cash flow came in at $20.6 million in Q2, up 14.5% year on year.
Box has generated $258.4 million in free cash flow over the last 12 months, an impressive 25.5% of revenue. This high FCF margin stems from its asset-lite business model and strong competitive positioning, giving it the option to return capital to shareholders or reinvest in its business while maintaining a cash cushion.
Key Takeaways from Box's Q2 Results
Sporting a market capitalization of $4.42 billion, Box is among smaller companies, but its more than $445.4 million in cash on hand and positive free cash flow over the last 12 months puts it in an attractive position to invest in growth.
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.
Is Now The Time?
Box may have had a bad quarter, but investors should also consider its valuation and business qualities when assessing the investment opportunity. We cheer for everyone who's making the lives of others easier through technology but in case of Box, we'll 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 12 months is 4.2x, 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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