Box Inc Coverage Initiated At ‘Market Perform’: RJ

Box may have learned from cloud service competitor Amazon as it spends aggressively with future growth in mind

Box shares have plunged since their Jan. 23 debut on the New York Stock Exchange when they jumped by more than 50%. Nonetheless, analysts at Raymond James see further downside as being possible—simply because of the large premium the cloud storage company’s stock trades at currently.


Raymond James not negative on Box

In a report dated Feb. 17, analyst Terry Tillman and his team point out that despite the recent share price decline, Box stock remains about 44% higher than the initial public offering price. They added that investors shouldn’t look at their report as suggesting that they don’t like Box.

In fact, they see several potentially catalysts ahead, which suggests that there could be upside to their growth estimate of 31%. However, for now, they think the risk / reward looks more balanced based on the multiple. Currently Box trades at a multiple of 7.1 times EV / 2016 calendar year sales. That’s compared to the greater-than 30% growth software-as-a-service and the “high growth and EBITDA loss comp group,” which trades at a multiple of 4.8 times.

Opportunities for Box

The Raymond James team also thinks the potential catalysts are already somewhat priced into Box’s current share price. As a result, they would like to see the stock price decline before they would dive in.

They think Box’s opportunity lies in more than just basic file syncing to the cloud and online storage. Of course cloud storage is where the company got its start and currently is its core business, they point out that many enterprises are using Box as a platform for content and collaboration. Box has also become an important part of these companies’ process.

The analysts see about a $25 million total addressable market for revenue monetization as Box begins to leverage its recent investments. In the last 12 months alone, the company doled out about 98% of its revenue on investments. That’s significantly more than most software-as-a-service vendors that are in high growth and loss generating states.

Indeed, it would seem as if Box is taking a page from Amazon’s playbook in terms of spending aggressively now with future growth in mind.

Can Box continue its growth story?

So with all of these growth opportunities, is it possible that Box can sustain the growth momentum it has shown so far? The Raymond James team estimates a 31% growth rate for the 2016 fiscal year, but they say that could end up being conservative.

They point out that Box has already seen a growth rate of 47% this year in paid customers. Also average subscription revenue increased 37% year over year per paid customer. When looking at the current share price level, however, they say it implies $527 million in revenue for the 2017 fiscal year, which would be a growth rate of much more than 50%. The Raymond James team sees this as being “aggressive” when looking at assumptions about average revenue per user, retention and new customer growth.

Indeed, it seems as if investors who snapped up shares of Box at the company’s IPO or shortly thereafter may now be suffering from buyer’s remorse as Box stock could see the same fate as Twitter in terms of decelerating user growth.

As of this writing, shares of Box were down by 3.94% to $18.30 per share.