Cloud storage and collaboration services provider Box burst onto the publicly traded company scene Jan. 23 with its initial public offering, about nine months later than it had originally planned.
But the wait was worth it. Its first day on Wall Street was wildly successful, with the company obtaining $175 million and the stock rising about 65 percent on its first day in the New York Stock Exchange. It had been priced at $14 on Jan. 22, a click above the original indicative range of $11 to $13. The stock, whose identifier naturally is BOX, closed at $23.23.
It was the biggest and most important IPO since China’s Alibaba e-commerce business went public in September 2014.
Twenty-nine-year-old Aaron Levie, co-founder and CEO of the 10-year-old Los Altos, Calif.-based company, had wanted to do the IPO sometime last spring. But some operational and market factors last year delayed his plan.
But that’s all in the past. “We’re in the midst of a profound technology shift, as businesses of all sizes move their critical information and processes to the cloud,” Levie said. “It’s an incredible time to be building an enterprise software company, and we couldn’t be more excited about Box’s future.”
Key Numbers From the IPO
Here are some of the key facts and figures from the IPO:
–Box sold 12.5 million shares Jan. 23 for a total of $175 million;
–The company plans to use about half the funds from its sale of shares to grow its customer base via sales and marketing;
–Levie owns nearly 4 percent of the company, with early investors Draper Fisher Jurvetson, U.S. Venture Partners and Coatue Management owning roughly 40 percent combined;
–Box has about 32 million registered users, with an astonishing 99 percent of that user base made up of employees of Fortune 500 companies, according to its public documents.
Levie started Box in Seattle in 2005 primarily to serve consumers but has since changed strategy. Box now aims its cloud-storage and collaboration-tool services at enterprises. It has key partnerships with companies such as VMware (for mobile app development), Samsung (for integration on mobile devices), Google, NetSuite and others.
Cloud storage and enterprise collaboration industry leaders weighed in with eWEEK on Jan. 23. Their perspectives and opinions were all over the board about the company and its IPO.
Tien Tzuo, CEO and founder of business productivity suite provider Zuora, told eWEEK that “the Box story is not just about the cloud. We are in the midst of a global, once-in-a-century shift in business models away from buying products to subscribing to services. Because it’s affecting practically every industry, a seismic shift like this has the potential to be bigger than the Internet.
“After a lot of misunderstanding and lazy thinking about Box’s financial model last year, the investment community is finally starting to get it. Box is a great business that’s going to be around for a long time.”
So what does Box’s public debut mean for the subscription cloud-service industry as a whole?
“Tech companies may be spearheading the shift to subscriptions, but they’re definitely not the only ones,” Tzuo said. “In addition to enterprise services like Box, in the next few years you’ll see subscription plans for connected automobiles, smart home services, air travel, industrial equipment, household consumer products, luxury goods, the list goes on. Some of these subscription models will be from the next big tech IPO, but many will be from older, more familiar brands who are acknowledging a sea of change in consumer preferences from ownership to access.
“It’s a huge vindication for Aaron. Another college drop-out makes it big! If I was an Ivy League college right now, I’d be worried about Silicon Valley brain drain,” Tzuo said.
EMC Syncplicity General Manager Jeetu Patel, whose division offers a popular work collaboration and productivity app for mobile devices, said, “From our perspective of what we offer to our customers, absolutely nothing will change in how we compete in this market. We are extremely excited about what we have to offer, and how we have very clear differentiation from Box. That said, transitioning from a private to a public company has a dramatic impact on any organization.
“You now must deal with an unprecedented level of transparency that invites scrutiny from employees, customers, partners, analysts and investors, not to mention the media. Rather than it being a game of how much buzz you can generate around your company and the market, you are now judged by your public performance, and you receive a grade every three months. Going through the IPO process and reporting on the good, the bad and the ugly of your financials gives you a small taste of this scrutiny, and its impact on your employees, investors and customers.”
Box Performs Well on Day One as a Publicly Traded Company
David Lavenda, vice president of product strategy at enterprise collaboration player harmon.ie, had a completely different take.
“This is the end of Box,” Lavenda told eWEEK. “Even if the IPO is successful, the file sync and store game is over. Box missed its opportunity, and the world has moved on. Storage has become a utility like electricity or water, and the companies that have managed to grab huge swaths of customers will survive/thrive while everybody else eats their dust, and then inevitably fold.
“Box’s repositioning as a lightweight enterprise document management system may have been a good move for an earlier stage company with big cash reserves, but Box burned huge amounts of cash with little to show for it. After missing the initial IPO opp, Box should have hunkered down and honed its new offering until it was ready for prime time, rather than blowing through $168M in cash—most of it on sales and marketing, nonetheless. That much money on sales and marketing of file storage is absurd.
“With so much cash down the tubes, there aren’t many viable suitors for Box either. So, would I recommend investing in Box? Paraphrasing Dr. Seuss, I would say: ‘Knocks on stocks who flocks to Box.’ Caveat emptor,” Lavenda said.
Vineet Jain, co-founder and CEO of Egnyte, told eWEEK that “after a well-timed delay, we are finally going to see how a Box IPO plays out in the market. Even with its massive discount on share pricing right now, there are a lot of factors in play here for potential Box investors—both short term and long term.
“Over the short term it is very simple: Box needs to make friends right now. By debuting with dual-class shares, similar to the approach taken by companies including Facebook and Workday, they will need to make believers out of the general public right now in order to successfully sell a large amount of their stock in the early stages,” he said.
“In the long term, Box is presenting a very high-risk, high-reward scenario for investors. With Microsoft and Google essentially making cloud storage a free commodity, they will need to diversify beyond storage and create more unique value. The key will be profitability in the long run.
“I certainly hope Box can rise to the occasion. This is a major inflection point for our space as a rising tide will raise all boats. So as we approach the ringing of that opening bell, I do wish Aaron and his team the best of luck,” Jain said.
Yorgen Edholm, CEO of Accellion, is one industry leader who believes that the lower IPO price that Box is setting actually doesn’t matter, “because the price everyone will really care about is what it is six months from now, or six years from now,” he told eWEEK.
“From a liquidity perspective, the longer term price is light years more important. While it might mean they raise less money now, that could actually be good as it may force Box to adopt a more efficient business model, which over time will make them a stronger competitor.”
Ranjith Kumaran, founder and CEO of Hightail, was among those with good wishes for Box. “I definitely hope Box’s IPO goes well, since a successful offering will benefit all the vendors in the category,” Kumaran said.
“I believe Box will get there. Though the investor community has been a bit spooked by their huge cash burn, they also recognize the massive disruption that cloud file sharing represents, and it remains an incredibly valuable space. It’s certainly one that my company is excited to be part of, even if our approach and target market is very different than Box’s.”
Ajay Patel, co-founder and CEO of secure enterprise collaboration software provider HighQ, was wary of the market reaction.
“With market sentiment cooling off, any adverse reaction to such a high-profile listing is likely to have a profound impact on the wider tech market, both on listed and private companies,” he said. “A large number of players in the VC market have invested in Box, and it is in their interest (and their portfolio companies’ interests) to ensure there is no collateral damage from this particular IPO.
“When Box filed its S-1, their financials shocked the market; in particular, the scale of losses ($168 million) and the admission that these are likely to increase. If the decision to delay the IPO is in the hope of a rebound in sentiment, this could be a risky strategy. Until now, investors have been comfortable with high valuations based on impressive top line growth. We could be seeing the beginning of a trend where more weighting is placed on profitability. If this is the case, Box may need to completely rethink their freemium business model and sacrifice growth for profitability (or reduced losses).
“If it happens, the Box IPO will be the biggest story of the year. Box is a company admired by investors and customers alike. It has positioned itself as a major player in arguably one of the biggest software market niches: cloud collaboration. As CEO of a competitor company, I sincerely hope that this IPO is a success,” Patel said.
Has Taken More Than a Half Billion in VC Funding
Box has banked a total of $546.1 million in venture capital funding over its 10-year history.
Though sales have been good—it claims about 5 million individual users and about 200,000 business customers—Box has yet to see black ink in its financials. In its required SEC S-1 filing a year ago, Box showed a net loss of $168 million from the fiscal year that ended Jan. 31.
Lately, however, things have been looking up. Box’s revenue improved 80 percent to $153.8 million in the nine months ended Oct. 31, and its net loss fell to $121.5 million.
Box’s corporate customers include such household names as Ameriprise Financial, Eli Lilly & Co. and Gap Inc.