Research

Billionaire Chamath Palapitiya said BOX Equity will be a 10x in 10 Years from AI-driven 25% revenue CAGR

View above about Model Issue: BOX Equity Price

And so we get to our 2018 pick for Ira Sohn, which is Box. So why Box? For a bunch of reasons. The first and foremost is that they sit on top of an enormous amount of [artificial intelligence] R&D that these internet giants [Amazon and Google] are already doing . . . And they do three very simple basic applications with all of this infrastructure that has been built for them. They give companies the ability to add intelligence to imagery, to audio, and to video . . . When you layer this AI-led digital transformation, what we think is going to happen, is very similar to the last decade, we’re going to see, on average, 20-25% compounding in their revenue, we’re going to see an expansion of all of these verticals, we’re going to see an expansion of ARPU driving value-added services, and we think we’re going to see even a modest multiple expansion over the next 5 to 10 years, and when that happens, what you see is a business that can be extremely valuable. Box can be a 10x in 10 years.
Research

6% Shareholder Starboard Value Said BOX Equity can Offer Good Returns if Management Gives Up on 25% Revenue CAGR

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The issue comes when you’re promising more growth than you’re achieving and you’re not able to pivot and balance that profitability and instead, as you may see in Box, you instead continue to spend more and more dollars chasing that growth. Those companies that are reaching that level really need to also understand how to balance profitability.
Analysis

We See About 1/3 Odds of > 5x Return on BOX Equity in 5 Years and 1/3 Odds of Losing Money, for a 5x Mean Return

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Even after its recent rise, Box stock seems to reflect cautious expectations about the sustainability of its differentiation even for its current paying users, not to mention for its non-paying registered users or any other prospective users. We think the odds are higher that value-added features will make Box sticky at least for its current paying users and enable it to not only retain them but continue to increase prices. We see good mean return and upside vs. downside odds. If you are reading on a smartphone, flipping to landscape orientation may help.
Analysis

For Investors Seeking to Avoid the 1/3 Odds of Loss on Box Common, a Term Loan Plus Warrants May Provide a Better Way to Play Scenarios for Enterprise Value

View above about Model Issue: MOIC on Box securities owned by PCI

Below, we see percentiles for future return on a hypothetical $200M investment by a Private Credit Investor in a $200M term loan with 20% coverage in warrants struck at 150% of the current equity value. This upside & downside might suit some investors even better than the common equity's upside & downside. If you are reading on a smartphone, flipping to landscape orientation may help with this chart.
Analysis

A Private Credit Investor's 2x Mean Return is Influenced by the Odds for Box's Future Enterprise Value & Cash Balance

View above about Model Issue: MOIC on Box securities owned by PCI

Box equity value is driven largely by the company's enterprise value, which also influences other securities issued by Box. Because we produce odds of many enterprise values at multiple future horizons, we can assess the trade-offs between anything in the capital structure. Below, the lines show 100 cases for a hypothetical $200M term loan plus warrants issued to a Private Credit Investor ("PCI") for a $200M investment, the rainbows show their 10th, 25th, 50th, 75th, and 90th percentiles, and the dotted line shows their mean. Drag across some lines to zero in on some cases. For example, drag the lines that are only in the rainbow to eliminate the outlier top 10% & bottom 10% of cases. And hover over any case for enterprise value in the bottom panel to see investors' outlook at that horizon, which influences enterprise value at that horizon. If you are reading on a smartphone, flipping to landscape orientation may help.
Analysis

Future Enterprise Value is Driven Especially by Future Multiple, and We See 25% Odds it is > 50% Above Dropbox's Current Multiple in 2 Years and 10% Odds it is > 50% Below

View above about Model Issue: BOX Equity Price

Odds of returns on BOX Equity through any horizon depend on odds of exit multiples at that horizon, which depend on expectations at that horizon for Growth, Profitability & Scale. We estimate odds for those expectations by Quantifying Stories in Scenarios. In the chart below, click some multiples to see the expectations that can drive them. If you are reading on a smartphone, flipping to landscape orientation may help.
Analysis

Box's future cash balance depends on differentiation influencing peak share & pricing, and we see more cases for upside to differentiation than downside

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Odds for future cash flows depend on odds for differentiation and its impact on peak economics for different target markets. By Quantifying Stories in Scenarios for those, we produce not just a base case and an update & downside anchored closely to it, but a wide range of 100 cases with odds that reflect our research. In the table below, drag the dot to explore what can drive different cases for long-term cash flow. If reading on a smartphone, flipping to landscape may help.
Analysis

We Frame Our Key Judgments Across Several Levels of Differentiation, Across Several Markets for Which Investors May Change their Expectations for Box's Differentiation Over Time

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We drive many cases for cash flows and valuation not by maintaining many copies of a spreadsheet and manipulating many inputs manually but by connecting an integrated financial statement model, with appropriate cash flow treatment of growth & decline, to a concise depiction of the main drivers of the fundamental story and how those drivers may be related. Check out a summary of those drivers in the table below, and then check out some of our research attached to some of those key drivers in the posts that follow.
Research

Box has Moved from One of Many Places to Upload Documents to a Provider of Suites that Customers may Design their Workflows Around

View above about Model Issue: Odds that Box is One of a Few Alternatives for its Current Paying Customers

Over the past few years, we've methodically been building the category-defining cloud content management platform focused on three key differentiators, frictionless security and compliance, seamless external and internal collaboration and workflow, and worldclass integrations and API's that extend the value of Box into any application. In today's new work environment, this product strategy is incredibly relevant. And in Q1, we delivered several new innovations. We announced new automated malware detection capabilities and controls in Box Shield. Box Shield is our fastest growing add-on product in the Company's history, and we have plans to continue to enhance and expand its capabilities to drive even further adoption . . . Earlier this month, we also introduced the All-New Box experience to increase productivity and enhance team collaboration. The All-New Box experience includes an updated simplified design and much faster performance, Box collections, which provides the ability to organize files and folders around topics and workstreams that are important to the user and annotations, which will allow users to leave free form markups and text comments directly in Box when previewing more than 100 different file types.
Research

Box is Having Success Increasing Price / Seat via Upselling More of its Suite of Products

View above about Model Issue: Peak monthly revenue per user if One of a Few for Current Paying Users

If BoxWorks 2019 was focused on new product launches, this year’s event centered on Box’s objective of driving responsible growth and operating leverage through the harvesting of its now fully baked cloud content management (CCM) portfolio. With installed base seat penetration of only 12.5% and 60% of revenue now coming from customers with more than one product, Box is prioritizing up-sell and cross-sell over new logo additions. Overall, while risks to the business remain—particularly the duration of the impact on Box’s SMB business from COVID-19—we believe Box’s relatively underpenetrated enterprise customer base and overall stickiness of its platform position the company well to exit this crisis on a strong footing. Management noted strong momentum in expanding existing customer spending, noting that the number of large customers (i.e., those spending more than $100,000) has grown 35%-45% over the past two years—and now accounts for 60% of recurring revenue.

BoxWorks 2020 and Analyst Day Takeaways Report

Research

BOX Sees Increasing Ability to Up-Sell Existing Clients

View above about Model Issue: Peak monthly revenue per user if One of a Few for Current Paying Users

BOX has seen strong historical tailwinds supporting their product add-ons for large clients. The company reported that over 70% of their $100K+ contracts chose to add on ancillary BOX services and products. Additionally, BOX's smaller contracts - those ranging from $10K to $100K - have a 49% add-on rate. Overall both rates have increased greatly from Q1 2018, with add-on rate for smaller contracts increasing from 27%. This growth reflects an almost 82% jump. This trend overall suggests BOX has been increasing their ability to up-sell and further monetize existing clients and users through their broader IP and product portfolio offerings.
Research

Real-Time, Box is Seeing Current Paying Users Engage with More Paying Features for not only Storage but also Workflow

View above about Model Issue: Peak monthly revenue per user if One of a Few for Current Paying Users

There is sort of this moment be in February, transitioning to middle of March where you can see that collaboration is going up in a range of industries, public sector, life sciences, healthcare and marketing and advertising, tech companies and then usage of things like integrations with Zoom and Webex and Slack and other tools. So that shift in more collaboration, more sharing more external collaboration of data is persisted throughout the quarter. We think this is a great opportunity to drive greater adoption within our customer base right now.
Research

Subscriber lifetime estimates for Box are justified within the SaaS industry

View above about Model Issue: Current Paying Users' Subscription Lifetime in Months if Box is One of a Few Alternatives for Them

As contract sizes increase, gross dollar churn consistently trends downwards (presumably related to longer term contracts). For SaaS companies with media contract sizes of over $5,000, the median annual churn will be ~10%. A 10% churn rate implies a 120 month subscriber life, justifying the 120 day figure cited. The ranges for these SAAS companies could easily fall as high as ~20% (justifying the 60 month sub life) or as low as ~5% (justifying a 240 month life).