Business

The hype around Box is long gone, but stocks are trading near record highs

Box CEO Aaron Levy speaking at BoxWorks in 2018.

Box

In this weekly CNBC series, the companies that made the first Disruptor 50 list 10 years later are featured.

At 37, Aaron Levy has worked the same job for almost half of his life. He is the CEO of Box, a collaboration software provider, a business he started as a sophomore at USC.

As a start-up startup in the dorms, Box now employs more than 2,100 people and generates around $900 million in revenue. annual income. Levy, despite his relative youth, is a veteran of cloud software, an industry that consisted of Salesforce and little else when Box was just starting out.

Levy is also a seasoned veteran when it comes to Wall Street drama, and he has the scars to prove it.

In the decade since Box made the very first CNBC Disruptor 50 list, the company has taken into account a delayed IPO to improve its economy, a long period of underperforming stocks, and had to endure a bitter battle with an activist investor last year. Starboard Value, which was demanding that the company either find a buyer or fire its CEO.

Levy kept his job and eventually independent boxing was victorious in his proxy fight with Starboard. After all, investors seem to like what they see.

The company recently broke through a record high stock price since 2018, and Box proved to be a safe haven during a tech market slump towards the start of 2022. Among the 76 companies in the Bessemer Venture Partners Box cloud index, it ranks fourth. the best performer and one of the seven participants this year.

“It’s a strange statement about fame,” Levy said in a recent interview. “I literally got to the other side of this thing, which is a healthy balance of growth and profits, which is actually a very good thing.”

Excellence Box this year

CNBC

Box shares are up more than 5% this year to close on Wednesday, while Nasdaq is down more than 11% over the period. Shares rose on March 17 after Box released forecast on the day of an analyst who called for revenue growth in fiscal 2025 from 15% to 17%, along with operating margins from 25% to 28%.

JMP analysts said in a report that the updated guidance “reflects the company’s strong performance, leadership in a large market, and prospects for further financial improvement.”

Even with the recent momentum, it’s not what Levy had hoped for given the hype surrounding his company 10 years ago when it was a red-hot Silicon Valley startup. Its market capitalization is just under $4 billion today, compared to about $1.7 billion at the time of its 2015 IPO. Venture investors valued the company at $2 billion in 2013. Magazine Inc. placed Levy on the cover as Entrepreneur of the Year.

Compare that to some of the top names that joined Box on the first Disruptor 50 list. Airbnb is worth $106 billion, Shopify is worth $83 billion, Square (now Block) is worth $75 billion, and Atlassian is worth $73 billion. Also on the list this year is Dropbox, a rival to Box, which has struggled since its IPO in 2018 and now has a market capitalization of less than $9 billion.

“We categorically believe that we are underestimated,” Levy said. To prove this, the company bought back the shares and on the day of its analyst increased its buyback plan by $150 million over the next year.

Box co-founders Aaron Levy (center) and Dylan Smith (2nd from right) celebrate their company’s IPO on the floor of the New York Stock Exchange on January 23, 2015.

Brendan McDermid | Reuters

“This is our message,” Levy said. “We believe that these stocks are very attractive to us” and that “we have significant upside potential going forward.”

Part of this potential growth comes from income growth, which is finally accelerating. Revenue in the fiscal year ending January increased 13% from 11% the previous year. Prior to that, growth had slowed for eight consecutive years as improved collaboration and file storage tools were built into low-cost productivity suites from Google and Microsoft.

To achieve 17% growth in three years, Box is looking to a strategic shift that includes providing more products to its customers.

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In the following years, Box invested heavily in the transition from product to platform. Instead of selling collaboration software, the company now offers a so-called content cloud, a full suite of services for storing and sharing documents, managing workflow, protecting files, and integrating third-party tools. In early 2021, Box spent $55 million on the launch. SignRequestby adding electronic signature technology to your cloud.

“Ten years ago, we only talked about collaboration,” Levy said. Now, he says, the company is “creating a complete package rather than the one opportunity that has been the driving force behind all growth.”

Box says that out of more than 100,000 customers, 120 spend at least $1 million a year. Within its customer base, the company sees “an opportunity to expand its user base by a factor of 7” as its products become relevant to more people in the workplace, its Analyst Day presentation said.

In the world of software as a service, or SaaS, investors have heard many companies touting the “ground and expand” model by selling it to a small development or marketer team and then using that footprint for wider adoption within the organization.

Box has made collaboration work, but it still has a long way to go to prove that its platform can be a key element of the enterprise stack of the future. Although the stock has performed better recently, it still trades at about four times its forward earnings, which puts it in the bottom fifth of the index. Cloud BVP Index.

The good news for Levy is that activists have turned their backs on him, and numbers are improving where it matters most: free cash flow jumped 41% in 2022 to $170.2 million.

“I would advise all founders to focus more on cash flow,” Levy said.

With two small children at home, Levy doesn’t have much time to train young entrepreneurs who are trying to navigate the current market volatility. But he’s learned a few things from fighting battles that many tech entrepreneurs have avoided so far.

And if he has any wise advice, it is:

“There are ebb and flow in Silicon Valley,” Levy said. Always look at the long-term economy and “how are you going to generate cash flow in the future,” he added, “because that future could come sooner than you think.”

Subscribe to our weekly original newsletter that goes beyond the annual Disruptor 50 list, offering a closer look at companies like Box before they go public and founders like Levy who continue to innovate across all sectors of the economy .


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