Why Boxs Bad Financials Might Be Right on the Money

In the weeks surrounding Box’s initial public offering announcement, the enterprise file sync and share vendor (EFSS) and its founder, Aaron Levie, couldn’t make enough news.

There was a mention of Levie’s appearance at SXSW and his name-dropping about Ashton Kutcher being an investor. And there was boxdev, Box’s Developers conference, which intended to build a community of 1,000 plus developers and give them the tools that they need to build rich solutions around Box.

While each of the aforementioned went off fabulously well, the IPO announcement sandwiched in between left the reputations of both Levie and Box less than optimal.

Why? Because Box’s S-1 filing revealed the company is spending much more than it is making — specifically, for every one dollar the company takes in, it spends $1.38.

The Scorecard So Far

Even Levie’s biggest supporters and friends, like GigaOm founder Om Malik, called Box’s financials “horrid.”

Now if Levie was a geeky genius or someone who just wanted to build beautiful experiences, like Tumblr’s David Karp, Box’s investors could sit him down and give him a few lessons in accounting. But chances are that he doesn’t need them, and that, even if he did, Box co-founder Dylan Smith, who is Box’s CFO, could provide them.

It’s probably safe to assume that Levie knows exactly what he is doing … even though he’s not talking about it.

It could be that Levie’s lips need to stay zipped until Box’s pre-IPO roadshow begins, which, by most accounts, should have started last week.

But a few things have happened since the S-1 filing. Tech stocks, which were flying high, have taken some dives. Competitor Dropbox announced the re-architecture of Dropbox for Business and added features which not only make it more Enterprise-grade, but also make it easy for Dropbox’s users to add and seamlessly use employer-owned accounts.

And EMC- owned EFSS provider, Syncplicity, has won a few moments in the spotlight — Jeetu Patel, the company’s General Manager, appeared on CNBC’s Squawk Box and revealed the company has been named the fastest growing EFSS vendor by  IDC (and that EMC pays its large salesforce twice as much for selling Syncplicity than other EMC products). Patel has also been featured as the subject matter expert that Fortune Magazine used in an article about Box .

While much of the press, at least until now, hasn’t listed Syncplicity as a Box competitor, the word is now out, and EMC spells Enterprise, security and safety to most CIOs.

Has Box Paused its IPO?

Box didn't start its pre-IPO roadshow last week, as expected. The unanswered question is whether it will do so anytime soon. The company has no comment on the matter.

Arik Hesseldahl, of re/code suggests the company may wait until  fellow SaaS vendors Salesforce and Workshare file their quarterly results later this month before deciding.

But Mark DeCambre of Quartz wrote earlier this month that he sees no signs of Box changing its IPO plans. Instead he wrote about different strategies Levie and company might take.

Here's What Box Should Do

And while DeCambre’s recommendations are insightful, we think that there’s one thing Box needs to do as soon as possible — explain the rationale behind such great losses. The strategy has, no doubt, cost Levie a pretty penny, as he’s had to sacrifice part of the ownership of the company each time he’s gone to VC’s for more money. So much so, that less than 5 percent of the company he founded is now under his control.

Though we haven’t spoken to Levie, there may be good reason as to why he’s been willing to pony up the bucks and make a personal sacrifice — namely that the time for Box to win the lion's share of the market is now.

Later may be too late even if Box has the most Enterprise-grade features and has teamed with the largest ecosystem of partners and developers.

After all, the competition is catching up.

Syncplicity has EMC’s larger salesforce pitching its EFSS product to companies who demand bulletproof security and Dropbox has 275 million users, many of whom would love to take their Dropbox accounts to work.

Not only that, but Microsoft will likely make a big EFSS push via its OneDrive, Office 365 and SharePoint offerings.

Add all of that up, and every penny Box has spent might have been well planted at exactly the right time.

And given that Box was seeded with money that Levie and Smith won playing cards, it might be safe to assume that they know how to make calculated risks.

How will the company respond to risks it hasn’t encountered before, like market winds, deeply-seeded vendor relationships and a fickle economy?

For questions like that, Box has a team of shrewd, well-seasoned VC’s who will, no doubt, make suggestions, and who could, ultimately control the hand that gets played.

What’s your bet? Will Box begin its IPO road show this month and be able to go public by summer? Or will it hold back?