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Box Earnings Preview

Editor’s Morning Note: It’s the most wonderful time of the year! Box earnings day! 

Screen Shot 2016-08-30 at 10.58.03 AM

Box reports its fiscal second quarter results after the bell today.

Analysts expect that Box will lose an adjusted $0.19 per share on revenue of $94.65 million. Box, in modest contrast, noted in its sequentially preceding financial report that it expects revenue “in the range of $94 million to $95 million.” The company also said that it anticipated losing an adjusted $0.19 to $0.20 per share during its fiscal second quarter.

The inside and outside parties aren’t far apart.

Why do we care? The enterprise cloud storage and productivity company is among the best-known SaaS shops, and as a public unicorn, Box provides a living business case of sorts for everyone interested in its revenue model’s performance.

What We’re Looking For

Quickly, here’s what we care about in Box’s earnings report:

  1. Earnings relative to expectations. Did Box over, or underperform?
  2. Improving business results. How much progress did Box make in cashflow and margin expansion? This sets the context for revenue quality when it comes into play regarding its ARR.
  3. New multiples. Box, after reporting its revenue, will set a new ARR—annual recurring revenue—baseline for itself that we can use to suss out current market multiples.

Box’s multiples are measuring sticks that we can use to value other companies. For example, at midpoint revenue based on its own predictions, and its current $1.61 billion valuation, Box would put up an ARR multiple1 of 4.25 times, and so forth.

Now, every company is unique, sporting its own margin profile, cash position, revenue growth curve, and ACV derivative. That’s why point 2 up above matters—we need to understand the health of Box so that we can understand its multiples in context, better judging everyone else.

Does that sound arcane? It’s actually simplicity itself wrapped in annoying language. Here’s the rough gist:

The value of a company fluctuates based on market sentiment. This is true in the macro sense—broad downturns suck for everyone. It’s also true in the micro sense—a security company tanking an earnings report can bring down its peers, even sans news from those other companies. And it’s true as well for private companies that have public analogs. If the public market decides that a certain public company is worth more, or less, its private analogs are also effectively repriced. Given the huge popularity of the SaaS business model, if the public market decides that Box’s recurring revenue is worth more per dollar by bidding up Box shares and bolstering its multiples, it helps private SaaS companies and other public tech companies. If the markets whack Box and undercut its multiples, it’s akin to yanking the carpet out from under the feet of private SaaS companies. This is especially true for companies looking to raise money in the short term or companies with a rich valuation; in other words, all of them.

That said, it’s time for Box’s report card and some public judging. Let’s see!

  1. Yes, not all Box revenue is recurring; no SaaS company is probably 100 percent pure. Relax.

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© Mattermark 2017. Sources: Mattermark Research, Crunchbase, AngelList.
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