Box (BOX): Closer Look at Metrics Bodes Well for '16 - Oppenheimer

Oppenheimer analyst, Ittai Kidron, examined Box's (NYSE: BOX) 3QFY16 performance metrics more closely and continues to believe the stock could Outperform in 2016 as lower customer acquisition costs lead to higher margins and penetration increases within its customer base. No change to Outperform rating or $21 PT.

Management's doing an excellent job of holding absolute free user costs flat YoY despite a growing free user base. And while the net expansion rate continued to decline (119% from 121% in 2QFY16 and 123% in 1QFY16), we see potential for a reversal 6-12 months out given: (1) still low seat penetration, (2) low churn, and (3) a yet to fully ramp new product and sales/channel pipeline (especially Platform and IBM).

Box disclosed its free user costs were ~11% of sales or ~$8.7M (~ $0.07/share impact). This compares to 13% (~$9.5M) in 2Q16 and 15% (~$8.6M) in 3Q15, showing encouraging efficiency/cost/scale gains offsetting continued free user growth. The improvement came despite an acceleration in free user growth (~2.4M net-adds; +45% QoQ) as overhead is spread over a larger base.

Seat expansion rate could accelerate in 2016 as the signed customer base is underpenetrated, churn rates are low and new products are being released.

Box added 4,000 (+8% QoQ/+23% YoY) new paying customers and 580,000 (+14% QoQ/+67% YoY) new paying users. These are the strongest net adds on an absolute basis in FY16 and on par with peak levels of FY15.

Box's implied rev./user/month was ~$5.33 during 3QFY16 (-6% QoQ/-14% YoY). On a YoY base Box is maintaining its pricing within its existing customer basis, but seeing mix shift-related pressure as it gains more large-enterprise customers (bigger deployments, but lower ASP) and ELAs. IBM's ramp could accelerate ASP pressure, but lower acquisition costs make for higher margins.

For an analyst ratings summary and ratings history on Box, Inc. click here. For more ratings news on Box, Inc. click here.

Shares of Box, Inc. closed at $13.19 yesterday.

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