Based in Los Altos, CA, Box, Inc. (Pending:BOX) scheduled a $150 million IPO on NYSE with a market capitalization of $1.43 billion at a price range midpoint of $12 for Friday, January 23, 2015. Priced at $14, no change in conclusion.
The full IPO calendar is available at IPOpremium
Manager, Joint-managers: Morgan Stanley, Credit Suisse, J.P. Morgan, BMO Capital Markets
Co-managers: Canaccord Genuity, Pacific Crest Securities, Raymond James, Wells Fargo Securities
End of lockup (180 days): Wednesday, July 22, 2015
End of 25-day quiet period: Tuesday, February 17, 2015
BOX provides a subscription-based cloud-based, mobile-optimized Enterprise Content Collaboration platform that enables organizations of all sizes to easily and securely manage their content and collaborate internally and externally: data cloud storage and collaboration.
Accumulated deficit ($mm)
Per share dilution
Mrkt Cap ($mm)
% offered in IPO
annualizing Oct 9 mos
Box, Inc. NYSE
Attractive long-term financial model
…based on a combination of new customers and 30% expected compound annual growth from existing customers.
Long term model
Gross Margin % of rev
Sales & Mkt % of rev
R&D % of rev
G&A % of rev
Free cash flow margin
So if institutions believe BOX’s long-term model is feasible, then the stock will be attractive for some technology-oriented portfolios, partially because BOX believes the addressable market is $25 billion.
And there’s a good chance BOX is stacking the General Electric product (and others) rollout to generate a favorable quarterly progression post-IPO (that would make Morgan’s green shoe option quite valuable).
However, there are current red flags: growth is slowing
(1) Top line revenue rate of change slowing down:
- 80% for October 9 months, 111% for fiscal ’14, 140% for fiscal ’13 (Jan fiscal)
(2) Billings growth rate of change slowing down
- 46% for October 9 months, 103% for fiscal ’14, 112% for fiscal ’13 (Jan fiscal)
(3) Retention down somewhat
- 130% for October 9 months, 136% for fiscal ’14, 144% for fiscal ’13 (Jan fiscal)
(4) Quarterly top line revenue rate of change downtrends from July ’13 quarter
- 21%, 18%, 16%, 17%, 17%, 13%, 11%
(6) Marketing is 99% of revenue
Imbalance: With 32 million registered users across 44,000 paying organizations, marketing expenses should not still equal revenue.
(7) Net loss is the same as gross profit: -79% loss rate, 79% gross margin
(8) P/E ratio of -8.9 indicates high cash burn rate vs. market cap
$-463 mm accumulated deficit
Risk: Can BOX ever grow itself to breakeven as the market becomes more competitive?
On the plus side, General Electric (NYSE:GE) is reportedly in the process of rolling the product out to 300,000 employees. That information is not in the SEC filing but was mentioned in the retail roadshow. It was announced in May of 2014.
To put the conclusions and observations in context, the following is reorganized, edited and summarized from the full S-1 referenced above.
BOX provides a subscription-based cloud-based, mobile-optimized Enterprise Content Collaboration platform that enables organizations of all sizes to easily and securely manage their content and collaborate internally and externally: data cloud storage.
BOX’s platform combines powerful, elegant and easy-to-use functionality that is designed for users with the security, scalability and administrative controls required by IT departments.
BOX has built its platform to enable users to get their work done regardless of file format, application environment, operating system, device or location.
BOX’s paying business customers include more than 48% of Fortune 500 companies and more than 22% of Global 2000 companies.
BOX has over 32 million registered, paying users across more than 275,000 organizations. Users include employees from 99% of Fortune 500 companies, including companies in highly regulated industries such as healthcare and life sciences, telecommunications, energy and financial services.
As of October 31, 2014, approximately 90% of registered users are non-paying users who have independently registered for accounts and approximately 10% of registered users are paying users who register as part of a larger enterprise or business account or by using a personal account.
BOX currently has over 44,000 paying organizations.
For the nine months ended October 31, 2014, revenue from non-U.S. customers represented 20% of revenue. BOX expects revenue from non-U.S. customers to increase at a higher rate than revenue from U.S. customers over time.
There are several fundamental technology trends that are dramatically changing both individual behavior and enterprise IT infrastructure. Information workers increasingly expect to be able to access and work with their business content from any internet-enabled device, and they demand solutions that are as simple to use as their consumer internet applications, such as Facebook, LinkedIn and Twitter.
However, legacy on-premise IT architectures were not built for ease of use or mobility. As a result, IT departments are increasingly pressured to find easier to use solutions that address employees’ changing work styles, while also protecting confidential content, including documents, presentations, spreadsheets and multimedia.
At its founding, BOX recognized that content is more accessible, useful and powerful when it is centrally stored, managed and shared. BOX has architected its Enterprise Content Collaboration platform from the ground up to be cloud-based and mobile-optimized to meet the evolving demands of today’s information worker.
Cloud-based Enterprise Content Collaboration is especially powerful because it enables users to access and collaborate on centralized content from anywhere and allows organizations to access new features and apply policies and controls across all users and content simultaneously.
BOX’s solution is especially well-suited to support globally distributed workers with multiple devices.
The introduction of the iPad application in 2010 further accelerated enterprise adoption of the platform. In 2012, BOX introduced the Box OneCloud platform and the Box Embed framework to encourage developers and independent software vendors (ISVs) to build powerful applications that connect to Box, furthering the reach of the Box service.
In recent years, BOX expanded its global presence, opening the first international office in London in 2012, followed by Paris and Tokyo in 2013.
BOX is building a rich ecosystem around Box. BOX’s platform integrates with the applications of BOX’s technology partners, including salesforce.com, NetSuite and others, giving BOX’s users full access to Box without leaving partner applications.
In addition, third-party developers can rapidly build, update and provision new applications that leverage and extend the core functionality of BOX’s service, increasingly with a focus on specific industries and vertical market use cases.
To date, tens of thousands of third-party developers have leveraged BOX’s platform as the secure content layer for their applications, including developers that are part of its Box OneCloud ecosystem, which provides users with access to more than 1,300 iOS and Android third-party applications.
BOX relies on a combination of patents, copyrights, trademarks, service marks, trade secrets, confidentiality procedures and contractual restrictions to establish and protect BOX’s proprietary rights in its products and services.
As of October 31, 2014, BOX had seven issued U.S. patents and nine issued Great Britain patents that directly relate to BOX’s technology that expire between 2028 and 2033, and BOX had 87 pending patent applications in the U.S. and 46 pending patent applications internationally. BOX intends to pursue additional patent protection to the extent that BOX believes it would be beneficial and cost effective.
BOX registered “Box,” the Box logo and certain other marks as trademarks in the United States and several other jurisdictions. BOX also filed trademark applications in the United States and certain other jurisdictions, and will pursue additional trademark registrations to the extent BOX believes it would be beneficial and cost effective.
BOX is the registered holder of a variety of domestic and international domain names that include “box.com,” “box.net” and similar variations.
BOX’s license software from third parties for integration into its products, including open source software and other software available on commercially reasonable terms.
BOX’s current primary competitors include but are not limited to:
- Enterprise Content Collaboration: established vendors including EMC, IBM and Microsoft (Office365 and SharePoint); and
- File Sync and Share: including Citrix (ShareFile), Dropbox, Google (Drive), EMC (Syncplicity), Microsoft (OneDrive for Business) and Amazon (Zocalo).
5% shareholders pre-IPO
- Entities affiliated with Draper Fisher Jurvetson 23.1%
- U.S. Venture Partners IX, L.P. 11.7%
- Entities affiliated with General Atlantic 7.7%
- Entities affiliated with Coatue Management 6.8%
- Scale Venture Partners III, L.P. 6.7%
- Entities affiliated with Bessemer Venture Partners 5%
No dividends are planned.
Use of proceeds
BOX expects to receive $134 million from its IPO and use it for the following:
- BOX currently expects to invest at least 50% of the net proceeds in sales and marketing activities, product development, general and administrative matters and capital expenditures to support the growth in BOX’s business.
- BOX also may use a portion of the net proceeds to acquire complementary businesses, products, services or technologies.