In 2015 a number of high profile IPOs fell flat on their face after a few months of trading on the public market. The combination of weak fundamentals and grossly exaggerated private market valuations led to a selloff that has only recently started to improve. (See also: Dropbox's Top 3 Competitors.)
Box (BOX) is amongst the biggest losers of this group which also includes GoPro (GPRO) and Fitbit (FIT). Shares of the data solutions company are down 34% since its IPO in late March 2015 driven by decelerating revenue growth and weaker adoption rates. Box’s third quarter report this Wednesday will either reaffirm investors pessimism or be jumping off point for shares to soar.
Analysts on the Street are calling for a 19 cent loss per share on $100.64 million in revenue for the fiscal third quarter. Earnings estimates have improved 12% since Box’s most recent report at the end of August. Consensus forecasts at Estimize, which crowdsources estimates from buy-side analysts, academics, independent investors and others, has been more bullish at a 17 cent loss per share.
A host of Box’s woes in recent quarters can be blamed on weaker adoption of its content management products. As of the second quarter, its current customer base spans 66,000 businesses across multiple industries. Ongoing expansion efforts have paid dividends in terms of total revenue but growth rates continue to lag. Revenue climbed by 30% in the second quarter marking the slowest growth rate since the company’s IPO.
Recent strategic initiatives during the third quarter are expected to alleviate some of these concerns. This includes partnerships with Cognizant (CTSH) and Adobe (ADBE) along with key alliances with IBM (IBM), Microsoft (MSFT), and Apple (AAPL). At the end of September, Box signed a deal with Alphabet (GOOGL) which will integrate its platform into Google Apps. The hope is this will transform work in the cloud and drive user growth.
From a product side, Box continues to unveil new improvements to its core platform while also expanding into new technologies such as security and compliance. In return for its ongoing efforts, adoption and billing growth will push higher but will still lag previous periods.
Despite its best efforts, Box remains in a position of weakness heading into its fiscal third quarter report this week. Recent partnerships and new product rollouts during the period are expected to be met with lower profitability and weaker margins. The reality is that waning fundamentals along with a highly competitive enterprise technology space spells disaster for shareholders come Wednesday.