Box Drops After Earnings Error and Subpar Billings

March 14, 2015 • Trading Idea • Tags: ,

  • Box saw their stock plunge 13% after missing analyst estimates due Reuters’ calculation error. Though this was corrected, the share price didn’t
  • Guidance for upcoming year came in at 32% greater than this current year. This is down from 74% though. Company is also expecting to be cash flow positive in 2 years.
  • Even after the price drop, Box trades at a forward P/S ratio of 7.5x. That’s a little steep considering Box spends nearly all revenues on acquiring news customers. This is something competitors with much deeper pockets could do at a greater scale.

 

In a previous article, we found that Box’s unsustainable customer acquisition costs combined with intense competition from behemoths like Google and IBM would result in a decline after the short-term share price bump fueled primarily by IPO market buzz. Unfortunate for the California based cloud computing company, our predictions were right. During the latter half of last week, Box saw their stock plunge 13% after missing analyst estimates due Reuters’ calculation error.

Levie Cries Foul

BOX CEO Aaron Levie disputed the initial analyst aggregate loss estimate of ($1.17) per share reported by Reuters stating a discrepancy in the share count used as the cause of the error. Reuters later corrected the consensus estimate to an expected loss of ($1.99) per share. With Box actually reporting a per share loss of ($1.65), that meant that the company had actually beaten analyst predictions by 34 cents.

Revenues Up, But Billings Down

Box did not recover from the late estimate correction as many analysts still had some concerns about the company, most notably about their new adjustments to the reporting of billings.

box billings

Billings for the three months ended January 31 2015 were up 33% from $61.5 million to $82 million. However, due to a “comparative mix shift towards non-annual billings terms in the quarter”, total billings were understated and as a result, came in 4% below the 37% analysts were expecting. Regardless of the change in reporting, these numbers are significantly lower than their revenue growth:

Box 2014 income statement

Sales increased to $62.6 million for the three months ended January 31 2015, 61% higher than the same period a year ago (above). For the full year, revenue growth came in a whopping 74%, a much higher figure comparatively to Box’s billings results. This can be attributed to their business model: being a SaaS (Software-as-a-Service company), it may take months before they collect revenues from their enterprise clients which results in lower billing figures.

Box sales n marketing expenses

Along with the positive sales growth experienced in the last quarter, the company has also significantly lowered their sales and marketing expenses which were widely thought to be unsustainable. Their S&M expense as a percentage of total sales decreased 33% from Q4 2013 to Q4 2014 and 42% YoY(table above). Nevertheless, total operating expense continued to increase, growing 32.8% between the same periods.

Guidance Still Not Enticing Enough

Box Inc. has set first quarter 2016 sales guidance in between $63 and $64 million and for the full year FY2016 to be within a range of $281-$285 million. This would represent a major decline in revenue growth to almost 32%, from 74% this past year. Levie told FoxBusiness.com that he expects the company to be cash flow positive in about two years. This bears the questions, what will growth be by the time company is cash flow positive?

Bleak guidance numbers and increasingly competitive cloud storage/management landscape will make achieving profitability an uphill battle for Box. Rival and direct competitor DropBox recently announced the appointment of former Motorola CFO Vanessa Wittman which is seen as a preemptive reshuffling of their financial team before the long awaited public offering. Competition continues to ramp up in the cloud computing space. It’s best investors stay away from Box, which is still being valued at 7.5x 2015 sales.

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