Box Inc (BOX) Impresses Oppenheimer Following FQ2 Results Despite Backtrack to Negative Free Cash Flow

Analyst Expects More Upside Later in Fiscal 2018 and Fiscal 2019


Box Inc (NYSE:BOX) shares are falling almost 5% despite having delivered another quarterly beat for its second fiscal quarter of 2018. What caused inventors to suddenly get antsy? The cloud file syncing and sharing company may have had a double-hitter of free cash flow quarters, but yesterday after the bell tolled, that momentum came to a head.

Though the company is not cash-flow positive this quarter, Oppenheimer analyst Ittai Kidron sees the print from a bullish lens, noting that part of the cause for this step back stems from a key asset for the company: international investment.

In reaction to the “solid” print, the analyst maintains an Outperform rating on the stock with a price target of $22, which implies a 17% increase from current levels. (To watch Kidron’s track record, click here)

For the second fiscal quarter of 2018, Box posted $122.9 million in revenue and a loss per share of $0.11, outclassing consensus expectations looking for $121.7 million and a $0.13 loss. Billings likewise yielded a beat, with Box bringing $139.5 million to the table against consensus of $133.8 million, with OM taking a step up to 12.1%. However, user costs saw a roughly 3% dip in revenue compared to expectations for an approximate 7% year-over-year dip and close to 4% quarter-over-quarter dip.

The management team has “tightened” its fiscal 2018 outlook range to $503 million to $506 million with a pro forma loss of $0.44 to $0.46, offering some chance for upside, believes the analyst, considering the first half of the year’s investment prospects have carried a “strong pace” coupled with a “record pipeline.” Gross margin expectations were bumped up from 74% to 75% in the second half of fiscal 2018, and the Box team is committed to becoming free cash flow positive in the third and fourth fiscal quarter as well as for full-year fiscal 2018.

Kidron highlights, “Box delivered another solid quarter ahead of consensus with quarterly/FY18 guidance in line with expectations. Positives include good large deal momentum (8 >$500K and 4 >$1M deals) and partner leverage, ongoing new product traction with Governance, KeySafe, Zones, and Platform, and good overall execution (GM upside, lower free user costs, etc.). While FCF margin declined YoY, this includes international investment (~$5M facilities headwind), which is driving a strong pipeline and larger deals (>33% of >$100K deals were international). Overall, we come away comfortable with our thesis and remain positive on Box’s growing channel leverage (including the new Microsoft/Azure partnership) and expansion into content management and workflow (significant TAM expansion).”

Looking ahead, the future looks robust for the company, explains Kidron, who contends, “We believe this puts Box in a good position for further upside later in FY18 and more so in FY19 as its strategic efforts in content management/ new products gain more traction.”

TipRanks analytics reveal BOX as a Strong Buy. Based on 7 analysts polled by TipRanks in the last 3 months, 6 rate a Buy on Box stock while 1 maintains a Hold. The 12-month average price target stands at $23.67, marking a nearly 21% upside from where the stock is currently trading.

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