We found a bullish thesis on Box, Inc. (BOX) on ValueInvestorsClub authored by nathanj. VIC is our preferred site because the ideas there are generally posted by aspiring analysts who produce quality research. We find the ideas presented on the site well thought out and deserving a serious consideration. Click here for the full article. Below we summarized the BOX bullish thesis:
Founded in 2005 and listed in 2015, the California, USA-headquartered BOX is an American internet company that offers cloud content management and file sharing services for businesses. One of the original SaaS unicorns and a pioneer in file sync and share, BOX’s apps are available for Windows, macOS, and several mobile platforms. After several players’ entry in the initial euphoric stage of the software category’s rapid growth, the consolidation finally created four main competitors: BOX and Microsoft covering the enterprise, and Dropbox and Google focusing SMBs and consumers.
In spite of trading around 3.5x revenue, BOX saw the slower growing SaaS competitors trading around 7-10x revenue. The lackluster performance during the quarter preceding the publication of the original article was attributed to the following factors:
Threat of Commoditization
BOX’s main competitor Microsoft offers an attractive value package to its large installed base of Office 365 customers by including OneDrive. This is the main drag on the stock, which has pushed the company’s revenue growth into a slide from 30% in fiscal 2017 to the low teens today.
Like its SaaS peers, BOX registered operating losses on the back of heavy expenditures and slow industry growth. The management failed to seize optimization opportunities to improve operating leverage.
Blame it on the CFO
In an environment of hyper growth for SaaS category, BOX’s track record of dismal earnings, heavy cost structure, poor communication with Street analysts was also partly attributed to the first-time CFO Dylan Smith’s inexperience.
BOX is a Value Stock
Armed with low customer attrition rate, sizable revenue bases ($700 million annual), category leadership (ahead of Microsoft), acquisition-friendly candidate (no insider interference), and enterprise focus, BOX can significantly improve its profit margin. The analyst’s project growth @12%-15% for 2022 and 2023, the fair value comes to $27.
In addition to private equity players, other large companies like IBM (current reseller partner) or Oracle could be potential acquirers. A takeover would be a quicker resolution than any other alternatives. The takeover price range is projected within a $25-30.
Footnote: BOX has since risen to $23.68 as of 23 March, 2021.