Box (BOX)

Cloud content management platform Box (NYSE:BOX) reported Q2 CY2025 results exceeding the market’s revenue expectations, with sales up 8.9% year on year to $294 million. The company expects next quarter’s revenue to be around $298.5 million, close to analysts’ estimates. Its non-GAAP profit of $0.33 per share was 6.4% above analysts’ consensus estimates.

Company Overview

Known as the "Content Cloud" for managing the 90% of business data that exists as unstructured files and documents, Box (NYSE:BOX) provides a cloud-based platform that enables organizations to securely manage, share, and collaborate on their content from anywhere on any device.

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.

Box competes primarily with Microsoft SharePoint and OneDrive, Google Drive, OpenText Documentum, and to a lesser extent Dropbox in the content management and enterprise file sync-and-share markets.

A company’s long-term sales performance can indicate its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Unfortunately, Box’s 6.1% annualized revenue growth over the last three years was weak. This fell short of our benchmark for the software sector and is a tough starting point for our analysis.

This quarter, Box reported year-on-year revenue growth of 8.9%, and its $294 million of revenue exceeded Wall Street’s estimates by 1.1%. Company management is currently guiding for a 8.2% year-on-year increase in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 7.4% over the next 12 months, similar to its three-year rate. Although this projection implies its newer products and services will fuel better top-line performance, it is still below average for the sector.

Billings is a non-GAAP metric that is often called “cash revenue” because it shows how much money the company has collected from customers in a certain period. This is different from revenue, which must be recognized in pieces over the length of a contract.

Box’s billings came in at $264.9 million in Q2, and over the last four quarters, its growth slightly lagged the sector as it averaged 10% year-on-year increases. However, this alternate topline metric grew faster than total sales, meaning the company collects cash upfront and then recognizes the revenue over the length of its contracts - a boost for its liquidity and future revenue prospects.

The customer acquisition cost (CAC) payback period represents the months required to recover the cost of acquiring a new customer. Essentially, it’s the break-even point for sales and marketing investments. A shorter CAC payback period is ideal, as it implies better returns on investment and business scalability.

Box is extremely efficient at acquiring new customers, and its CAC payback period checked in at 17 months this quarter. The company’s rapid recovery of its customer acquisition costs means it can attempt to spur growth by increasing its sales and marketing investments.

For software companies like Box, gross profit tells us how much money remains after paying for the base cost of products and services (typically servers, licenses, and certain personnel). These costs are usually low as a percentage of revenue, explaining why software is more lucrative than other sectors.

Box’s robust unit economics are better than the broader software industry, an output of its asset-lite business model and pricing power. They also enable the company to fund large investments in new products and sales during periods of rapid growth to achieve higher profits in the future. As you can see below, it averaged an excellent 79.1% gross margin over the last year. Said differently, roughly $79.06 was left to spend on selling, marketing, and R&D for every $100 in revenue.

In Q2, Box produced a 79.1% gross profit margin, in line with the same quarter last year. On a wider time horizon, Box’s full-year margin has been trending up over the past 12 months, increasing by 2.2 percentage points. If this move continues, it could suggest better unit economics due to more leverage from its growing sales on the fixed portion of its cost of goods sold (such as servers).

While many software businesses point investors to their adjusted profits, which exclude stock-based compensation (SBC), we prefer GAAP operating margin because SBC is a legitimate expense used to attract and retain talent. This metric shows how much revenue remains after accounting for all core expenses – everything from the cost of goods sold to sales and R&D.

Box’s operating margin might fluctuated slightly over the last 12 months but has remained more or less the same, averaging 6.1% over the last year. This profitability was top-notch for a software business, showing it’s an well-run company with an efficient cost structure. This result isn’t surprising as its high gross margin gives it a favorable starting point.

Analyzing the trend in its profitability, Box’s operating margin might fluctuated slightly but has generally stayed the same over the last year. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability.

This quarter, Box generated an operating margin profit margin of 7%, in line with the same quarter last year. This indicates the company’s cost structure has recently been stable.

If you’ve followed StockStory for a while, you know 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 has shown terrific cash profitability, driven by its lucrative business model and cost-effective customer acquisition strategy that enable it to stay ahead of the competition through investments in new products rather than sales and marketing. The company’s free cash flow margin was among the best in the software sector, averaging 26.9% over the last year.

Box’s free cash flow clocked in at $35.72 million in Q2, equivalent to a 12.1% margin. This cash profitability was in line with the comparable period last year but below its one-year average. In a silo, this isn’t a big deal because investment needs can be seasonal, but we’ll be watching to see if the trend extrapolates into future quarters.

Over the next year, analysts predict Box’s cash conversion will slightly improve. Their consensus estimates imply its free cash flow margin of 26.9% for the last 12 months will increase to 29.2%, giving it more flexibility for investments, share buybacks, and dividends.

Businesses that maintain a cash surplus face reduced bankruptcy risk.

Box is a profitable, well-capitalized company with $757.9 million of cash and $654.3 million of debt on its balance sheet. This $103.6 million net cash position is 2.3% of its market cap and gives it the freedom to borrow money, return capital to shareholders, or invest in growth initiatives. Leverage is not an issue here.

It was encouraging to see Box beat analysts’ billings expectations this quarter. We were also happy its revenue narrowly outperformed Wall Street’s estimates. On the other hand, its EPS guidance for next quarter slightly missed. Zooming out, we think this was a decent quarter. The stock traded up 3.5% to $32.29 immediately after reporting.

Updated: November 8, 2025 at 9:09 PM EST

The latest quarterly earnings matters, sure, but we actually think longer-term fundamentals and valuation matter more. Investors should consider all these pieces before deciding whether or not to invest in Box.

Box isn’t a terrible business, but it doesn’t pass our quality test. For starters, its revenue growth was weak over the last five years, and analysts don’t see anything changing over the next 12 months. And while Box’s efficient sales strategy allows it to target and onboard new users at scale, its operating margin hasn't moved over the last year.

Box’s price-to-sales ratio based on the next 12 months is 3.9x. While this valuation is fair, the upside isn’t great compared to the potential downside. We're fairly confident there are better investments elsewhere.

Wall Street analysts have a consensus one-year price target of $36.75 on the company (compared to the current share price of $30.86).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.