BOX Stock Stumbling Out of the Gate

Welcome to the public markets, Box Inc (NYSE:BOX). It can definitely be brutal.

BOX Stock Stumbling Out of the GateBox Inc, which operates a cloud-based collaboration and storage platform, pulled off its IPO in late January and the stock surged a tidy 66% on its first day of trading. But since then, the performance has been pretty awful.

As of now, BOX stock is down about 30% from its high.

The culprit is Box earnings report. Interestingly enough, there was some controversy with it. On the Box earnings conference call, CEO Aaron Levie essentially scolded some analysts for using the wrong share count. Because of this, he touted that the company beat the Street by 34 cents per share.

This may be so — but the fact is that the bar was set pretty low anyway. Keep in mind that the company’s analysts have been fairly lukewarm on BOX stock, with mostly “hold,” “market perform” and “neutral” ratings. What’s more, about 38% of the float is in short positions.

Then again, the losses at Box Inc are still massive, regardless of the share count. On a GAAP basis, they were $52.9 million during the latest quarter. The company also burned through $15.6 million in operating cash flows. In fact, on the conference call the company indicated that cash-flow breakeven will not be reached until fiscal 2018.

Despite all the spending, Box has still seen a rapid deceleration in its growth. Consider that fourth-quarter revenues grew at 61% to $62.6 million, down from the 74% ramp for the whole year. Oh, and as for fiscal 2016, Box is forecasting a revenue increase of a mere 30% to 32%.

So what’s the problem? While it’s true that Box is gunning for a large market opportunity — which the company estimates at $25 billion — there are big players trying to get a piece of the action. Just some of the competitors include Inc. (NASDAQ:AMZN), Microsoft Corporation (NASDAQ:MSFT), Dropbox Inc. and Google Inc (NASDAQ:GOOG, NASDAQ:GOOGL).

“Companies like Dropbox and Google have a huge advantage in the corporate environment because at the end of the day, enterprise users behave just like ordinary consumers,” said Asaf Cidon, who is the co-founder and CEO of Sookasa. “They want to use seamless productivity tools in their personal lives, so of course they want to use them at work.”

Box’s overall technology strategy may also be a liability. “Larger companies are finding that cloud-only solutions like Box are unable to serve their need to scale,” said Vineet Jain, co-founder and CEO of Egnyte. “They also are unable to provide a viable option for controlling highly regulated data including financials, intellectual property, HR documents and so on.”

Box has been trying to adapt, such as with stronger design, mobile apps and applications that are focused on certain industries. But the company’s mega-competitors are no slouches with such things either. Besides, they have the advantage of being able to lowball the pricing on their software since their core businesses generate substantial cash flows.

Another issue with BOX stock is that the cloud market has suddenly gone sour. Here’s a look at some of the recent IPOs and their performances for 2015:

Company Return
Castlight Health Inc (NYSE:CSLT) -37.4%
Hortonworks Inc (NASDAQ:HDP) -26.3%
Veeva Systems Inc (NYSE:VEEV) -5.1%
Borderfree Inc (NASDAQ:BRDR) -19.8%
Mobileiron Inc (NASDAQ:MOBL) -12.8%
Opower Inc (NYSE:OPWR) -37.3%
Zendesk Inc (NYSE:ZEN) -7.5%

Now volatile swings in cloud stocks tends to be fairly common.  But for BOX stock, the situation may be more than negative sentiment. Again, the company is facing intense competition – and it looks like it is already taking a toll on revenues.

In other words, even with the drop in BOX stock, it is probably still better to stay away.

Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO StrategiesAll About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.

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