Shares of cloud content storage and management platform Box (NYSE:BOX) fell 9.7% in the morning session after the company reported third quarter results that fell short of Wall Street's expectations for key metrics such as RPO (remaining performance obligations, a leading indicator of revenue), billings, adjusted operating income, and earnings per share (EPS). Additionally, net revenue retention (a key metric indicating customer satisfaction and spending trends) declined compared to the previous quarter, with management citing challenges in seat growth within existing customers and pressures on I.T. budgets. However, it observed more stabilized demand in the U.S. market. On the product front, management provided a more positive update, noting that Box A.I. is driving Enterprise Plus upgrades with the expectation of more upsells in the next year.
Moving on, while its revenue was in line with analysts' estimates during the quarter, the outlook for the next quarter and the full year was below Consensus estimates. The topline guidance assumed continued pressure on seat growth due to macro headwinds and lower professional services revenue compared to the prior expectations. Overall, this was a weaker quarter for Box, highlighting several challenges.
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What is the market telling us:
Box's shares are not very volatile than the market average and over the last year have had only 5 moves greater than 5%. In context of that, today's move is indicating the market considers this news meaningful, although it might not be something that would fundamentally change its perception of the business.
The biggest move we wrote about over the last year was 3 months ago, when the stock dropped 12.3% on the news that the company reported second quarter results that missed analysts' expectations for billings, though revenue and earnings per share (EPS) came in ahead. Looking ahead, 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. Management hinted at the drivers of the weaker near-term outlook, adding that "While ongoing economic factors have affected our customers' IT budgets and put pressure on our projected fiscal 2024 growth rate, we remain committed to our long-term revenue growth targets as we continue to drive gross margin and operating margin expansion in FY24 and beyond." Overall, the results could have been better. Following the results, Craig-Hallum analyst Chad Bennett downgraded the stock's rating from Buy to Hold (Neutral).
Box is down 22.8% since the beginning of the year, and at $24.08 per share it is trading 30.6% below its 52-week high of $34.68 from February 2023. Investors who bought $1,000 worth of Box's shares 5 years ago would now be looking at an investment worth $1,282.
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