Cloud-based solutions provider Box, Inc. (BOX) turned in its earnings report Wednesday.
While there are some limiting factors that could slow Box’s growth, there’s quite a bit to like here, leaving me moderately bullish on Box’s fate.
Box’s cloud-based arsenal includes content management systems, collaboration tools, security and compliance systems, and more. This amounts to a complete digital transformation system under one handy umbrella.
Digital transformation has transformed from a “nice-to-have” into a necessity, as the pandemic forced so many workers to go remote. While Box stock has been moving in the $10-$30 range for the last five years, the share price has enjoyed significant upward momentum since March. (See Box stock charts on TipRanks)
Box’s latest earnings report demonstrates the company’s recent run of success. The company posted earnings of $0.21 per share against analyst expectations of $0.18 per share. The company also posted a win on revenue, turning in $214.5 million against expectations of $212.45 million. The revenue turned in represents a 12% increase against this time last year.
“Large and multi-product deals” proved to be winners for Box, fueling gains for the company. The company’s net retention rate improved to 106% from Q1’s 103%. Billings growth was greater than revenue growth for the third quarter running.
Both Remaining Performance Obligations (RPOs) and billings were up over last year. RPOs increased 27% against this time last year, while billings were up 13%.
Wall Street’s Take
The stock has a cautiously optimistic Moderate Buy consensus on TipRanks, based on four Buys, one Hold, and one Sell.
The average BOX price target of $27 per share implies 4.5% upside potential to current trading levels.
The consensus rating has held since February 2021, when it shifted from a Strong Buy. It held a Strong Buy rating through the last half of 2020 into early 2021.
Growth Gets Harder from Here
It’s easy to see why Box has shifted from a Strong Buy to a Moderate Buy. Box is something of a victim of its own success.
The company currently counts 68% of the Fortune 500 as its customers. That’s a big win, especially for a company that depends on repeat business. Cloud-based services are by nature subscription-based companies.
However, with 68% of the Fortune 500 already on board, its ability to expand from here will be somewhat more difficult. The odds of Box getting the entire Fortune 500 to sign up for its services are slim.
It can still expand, but further expansion will take more resources, to a point where diminishing returns kick in. Box also may be able to offer more services, and that will give it fodder for expansion. Having already-interested customers on hand for new services will be helpful here.
Box has done its job very well. It’s already drawn support from Institutional Shareholder Services (ISS), a proxy advisory firm. ISS recently recommended shareholders vote for Box’s own directors, instead of recently posed nominees offered by Starboard Value.
Starboard Value is an activist investor looking to shift Box’s overall direction. ISS’s statement to shareholders noted that “the Box of today is not the Box of 2019.” That’s exactly what investors should want to hear. The Box of 2019 wasn’t bad, but continuous improvement makes a great goal.
Box may currently be trading near the top of its five-year range, but that isn’t bad news for potential investors. With a solid portfolio of customers already in its corner and plans to improve from there, Box makes itself an attractive buy.
Disclosure: At the time of publication, Steve Anderson did not have a position in any of the securities mentioned in this article.
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