File-Sharing Firm Box Inc (BOX) Jumped Over 50% In Its Trading Debut

By Mani
Updated on

Box Inc enjoyed a massive debut last month as its shares skyrocketed 50% to over $21 per share in the first few minutes of trading on the New York Stock Exchange.

The strong debut is likely to enthuse other startups thinking about their own IPO.

Box shares rose 66%

In its January 23, 2015 trading debut, Los Altos, California-based Box Inc. shares jumped after raising $175 million in its initial public offering. Its shares rose 66% to $23.23 at the close in New York, after being priced at $14 in the IPO. At that price, Box is valued at about $2.7 billion, above the $2.4 billion valuation it received in a July private-funding round.

As reported by ValueWalk, Box raised $150 million funding last July, prior to its IPO. This pegged the estimated market valuation of Box at $2.4 billion. The investment came from TPG Capital, a global private equity investment management firm headed by David Doderman and Coatue Management, a hedge fund led by Philippe Laffont, one of the protégées of legendary investor Julian Robertson.

According to Box’s filing last month, Coatue Management LLC had also agreed to purchase up to 10% of the IPO at the offering price. This would likely significantly trim the cost basis of Coatue’s initial investment. The filing also revealed Coatue is already protected by a “ratchet” that boosts the amount of shares they own if the IPO comes in below $20.

Box’s differentiated offerings

Market researcher IDC in a 2013 report estimated the market for file sharing and synchronization software would grow 23% a year on average to $2.3 billion in 2018. The enterprise side of the market, where Box fits in, is growing slightly faster at 27% a year. Box had a 14% share in the overall market, behind Dropbox with 27% and Microsoft with 17%.

Prices for storage have dropped due to heightened competition. However, to combat this trend, Box has created ancillary services on top of storage to differentiate its offerings, including programs to facilitate companies in building custom applications as well as customizable security features. The cloud storage and file sharing services company also has a consulting arm, which helps customers navigate its services.

Like several tech IPOs, Box has a couple of years of high growth under its belt, but no profits to show for it yet. Box offers free personal accounts (up to 10 GB of storage) for individual to try out and then cheap packages for teams or small businesses, although their focus is on attracting enterprise customers. Box’s free accounts concept is the same basic business model as DropBox, with an eye to garner market share with teaser accounts and then use the network effect to build a moat around the business.

The success of Box’s IPO also pleased competitors, with Vineet Jain, chief executive of online storage provider Egnyte, saying it is evidence that this is a category of strong growth, and there is now a “big spotlight” on it.  Jain indicated he wants to take his own company public sometimes in 2016 as long as he meets his goal of becoming profitable in about a year. Other cloud-computing startups that could launch IPOs this year include Cloudera, Hootsuite Media and Docusign.

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