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Box IPO: High Growth Comes at a Price

The company is growing quickly, but at the cost of heavy losses


Box, which operates a storage and collaboration platform for businesses, has publicly disclosed its S-1 filing. The company plans to list on the NYSE under the ticker of “BOX,” and the lead underwriters include Morgan Stanley (MS), Credit Suisse (CS) and J.P. Morgan (JPM).

box-ipoEven though Box is growing at a hefty pace, the losses are also piling up. If anything, the deal looks like a throwback to the giddy 1990s.

No doubt, the Box IPO will get a boost from the strong momentum in the core business. The company’s customers include more than 40% of the Fortune 500 and 20% of the Global 2000. Some of the mega brands are the Gap (GPS), Bechtel and Eli Lilly (LLY). Box also has 25 million registered users.

It certainly helps that Box has invested heavily in its technology, such as in terms of security, scalability and mobile. At the same time, the company has built a system that integrates a myriad of applications like those from NetSuite (N).

Oh, and the timing of the Box IPO is also spot on. Here are some of the key trends driving the business:

  • Cloud Growth: According to Gartner, the total spending on the cloud is expected to go from $132 billion in 2013 to $244 billion by 2017.
  • Mobile: Last year, there were about 1.4 billion mobile Internet users. Although, this number is expected to grow to 2.3 billion by 2017 (according to IDC).
  • Data: Data is growing like a weed. In fact, from 2005 to 2020, the increase in volume is expected to jump by a factor of 300 (again, according to IDC).

Given all this, it should be no surprise that Box’s top-line has been on fire. From 2011 to 2013, revenues soared from $21.1 million to $124.2 million. This will definitely be key for Box IPO investors.

But, of course, the growth has come at a great cost. Last year, the net loss was a whopping $168.6 million.

Alex Gorbansky, CEO and founder of Docurated, had this to say about the filing:

“There are really two immediate questions for the Box IPO. Can the company sustain their growth and acquire customers in a profitable way? And will it remain an industry innovator amidst the quarterly pressures of investor expectations? My take is that it will be very challenging for Box to achieve lofty growth goals and profitability at the same time.”

Let’s face it, Box faces growing competition. The list includes biggies like Citrix (CTXS), Dropbox, EMC (EMC), Google (GOOG), and Microsoft (MSFT). They all have enormous resources, strong brands and great engineering teams. The “storage wars” are likely to be brutal.

But another issue for the Box IPO is the business model. Keep in mind that the company has a free version, which actually has lots of great features. The problem is that it can be tough to convert these users to paid ones.

Finally, the NSA scandal may be another risk factor. There are signs that other countries are getting antsy about deploying U.S.-based technologies for fear of being snooped on by the U.S. There are already signs that companies like Cisco (CSCO) and IBM (IBM) are feeling the pressure.

Despite all this, the Box IPO is likely to see strong demand. All in all, the cloud industry continues to see lots of strong activity, as seen with recent deals like Paylocity (PCTY) and Castlight Health (CSLT).

And what about the timing of the Box IPO? Expect it to hit the markets some time in April.

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.

Article printed from InvestorPlace Media,

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