Shares of Box (NYSE: BOX) have fallen in recent weeks following the company’s slightly disappointing earnings results. Though the company’s second quarter results certainly had some highlights, investors are clearly concerned about the cloud storage provider’s performance.
Those who have been waiting on the sidelines to scoop up Box following such a price decline just might have a fantastic buying opportunity to seize.
Box’s recent quarterly results were record-setting. The data shows a rapidly growing rate of revenue, an improved operating margin, enhancements in free cash flow and plenty of other silver linings. Investors jumped ship as management’s guidance was for an even more spectacular quarter that did not fully come to fruition. However, the company’s revenue is up more than 20% on a year-over-year basis. The growth has been catalyzed by a 14.5% boost in paying customers compared to the year prior. Furthermore, Box has a fantastic attach rate for its add-on offerings. Critics are quick to point out Box’s growth is not on par with that of Dropbox, the company’s primary competition. Furthermore, Dropbox’s quarterly revenue exceeds Box’s.
Box’s earning highlights of note include an absurdly low customer churn rate at 4.5%. This figure shows Box is remaining highly competitive even though Dropbox is building momentum. Box also has a fantastic customer retention rate of 108%. This rate is superior to that of competitors and serves as a testimony to the loyalty of Box customers. Box still has a negative free cash flow yet this figure is about one-third less than it was a year ago at this time. It is clear Box is slowly but steadily making progress.
Analysts agree Box’s recent quarterly results were primarily positive. However, the company’s weak expected outlook for the upcoming quarter is scaring away plenty of investors. Company leaders are projecting $154 million in revenue, meaning revenue growth will have decelerated. However, Aaron Levie, the CEO of Box is adamant the company’s cloud content management platform features elite security and workflow capabilities that will prove quite appealing to businesses of all types looking to digitize workflow processes and workplaces.
Indeed, Box appears to be on solid financial footing even though it is not blowing Wall Street expectations out of the water. Consider the fact that Box’s deferred revenue soared 25% to more than $300 million. Quarterly billings increased nearly 20%. Though this rate of growth is a bit underwhelming compared to the 31% rate of growth in the same period a year ago, the slowdown can be somewhat attributed to the seasonality of billings. Box’s CFO is adamant the company will reach a run rate of a billion dollars in revenue by 2022. The bottom line is this company is expanding even amidst heightened competition.
Do not be scared by the recent Box sell-off. Investors appear to be overly sensitive to any signs that Box’s growth might be slowing even the slightest bit. These overly-critical number crunchers have lost sight of the fact that Box beat its recent quarterly revenue expectations.
Box is a growth company every investor should consider adding to his or her portfolio. Continue to watch this industry as it develops. If it appears as though Box can steal market share from Dropbox and other competitors, or at least remain highly competitive across posterity, the stock might be worth buying.
If you currently own Box, hold tight until the next quarterly results are released. If growth stagnates at that point and it appears as though Box is losing market share, consider selling a portion of your stake. However, it appears as though Box is a healthy, growing business with a bright future. Give the company a chance to hit its stride, and you will likely be pleased with its performance.
Regards,
Ethan Warrick
Editor
Wealth Authority
