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Box (BOX) Low Expectations, Improving Results Heading into a Possible Catalyst

September 30, 2015 12:54 PM EDT

(Updated - September 30, 2015 3:56 PM EDT)

At 2:30PM Eastern, Box Inc (NYSE: BOX) will begin its first investor day as a public company. Despite a successful IPO, and beating revenue estimates on its first two earnings calls, the stock has lost nearly 50% of its value as investors have become more risk averse and shy away from unprofitable companies. That said, with the stock trading $2 below its IPO price of $14 this event could act as the catalyst to increase confidence from both the Buy and Sell side.

Deal metrics improving.
Box is the leader in an extremely competitive market but it is differentiating its solution with best in class security and enterprise focused features. This has helped the company demonstrate improving deal metrics and hint at improving financial results as new partnerships come online. In the most recent quarter, the company closed 33 deals in excess of $100k and four deals greater than $500k. Enterprise deals of this scale don’t close for fly by night companies and this has led to a partnership that could dramatically improve the company’s fortunes, a selling agreement with IBM.

IBM partnership could accelerate profitability.
IBM is a wildcard that has the potential to dramatically increase the company’s sales channel and help it grow into profitability earlier than the expected 4Q16. While this is the only marquee partnership announced to date, the enterprise focus could attract interest from additional services providers. Product features like EKM for external collaboration, Governance for leveraging the cloud for record retention or compliance combined with tight integration with Microsoft Office provide low cost solutions that consulting firms could layer services onto.

Sellside starting to consider upgrades.
The sellside has been on the sidelines with ratings upgrades but that may be changing. Last week, Canaccord Genuity analyst, Richard Davis, upgraded the stock to Buy from Hold but even an upgrade didn’t hold enough power to fight the tape. Analyst days are a great opportunity to announce products and partnerships that will lead to positive earnings revisions and with the stock trading $2 below its IPO price, expectations are low despite the improving financials and it may be worth the risk.

We will be on the call and providing you with insights as they occur. Check back here later for an update.

UPDATE:

After a high level, aka mediocre, beginning to the analyst day, Jeetu Patel, the former CSO of EMC's Information Intelligence unit discussed his view of factual reasons the company is winning over competitors. Granted, he has a personal perspective as the SVP of Strategy for Box, but he highlighted the technical reasons that security is beginning to drive the decision process with potential customers. He also quoted industry analysts (who were not present) indicating that Box is pullling away from the pack.

There have not been any additional customer wins announced yet or new products announced. The most leading of indicators was a reference to three new verticals: government, life sciences and construction.

With the market closing in a few minutes, we have not heard any concrete evidence to warrant estimate revisions or upgrades although there are more positive soft data points about the strength of business.



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