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Understated is not a term anyone would use to describe Box co-founder and CEO Aaron Levie. The Silicon Valley whiz kid who does magic tricks on stage, speaks at every conference on the planet (we’re only slightly exaggerating) and is quoted on Twitter as if he were a seer of some sort had his company’s IPO priced today. The Enterprise File Sync and Share (EFSS) provider has officially begun its road show.
The company, which originally filed to raise as much as $250 million last March, today revealed that it expects to raise somewhere between $137.5 million to $162.5 million. It will offer as many as 12.5 million shares at $11 to $13 a share.
Far Less than Expected
This sets its valuation at around than $1.5 billion rather than the $2.4 billion it earlier estimated. That’s two-thirds of what it was thought to be worth when it received its latest round of funding from TPG Growth and Coatue Management last July.
This could mean that Box senses trouble because there were stipulations when it received its last round of funding. Writing about the ratchet provisions Box agreed to, the Financial Times explained:
“If the IPO happens in the next 12 months, TPG and Coatue have been guaranteed a return of at least 11 per cent on the $20 a share they paid in the latest funding round.”
A price of $11 to $13 per share leaves Box with a substantial penalty in that TPG and Coatue would be entitled to purchase additional shares at a 10 percent discount on the IPO price.
So unless Levie and company can pull off a Hortonworks-like performance during their IPO — Hortonworks priced its shares low at $16. But they surged 65 percent to $26.38 on the first day of trading — the filing will cost them.
It’s also worth considering that Levie and Box’s investors might have come back to earth, recognizing that the Los Altos, Calif.-based startup is not the only (and probably not even the leading) provider that adds value to EFSS. There's Dropbox for Business, EMC Syncplicity, Citrix ShareFile, Microsoft, Google, AirWatch by VMWare, Amazon and at least a dozen other companies. Some estimate there are as many as 100, all offering many of the same of the same capabilities for a lesser price.
Challenges Abound
That being said, Box has worked hard to differentiate itself as an Enterprise Content Collaboration platform (ECC), but it may not be the first or only leader in that space. At least one content management consultant of note questions whether the term ECC makes much sense. Gartner doesn’t offer a Magic Quadrant for Enterprise Content Collaboration.
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But Forrester has issued a report on Box that mentions the pitch: “Like Dorothy, swept from the comfort of her home in Kansas, Box finds itself in an increasingly foreboding and threatening world as Dropbox, Google, and Microsoft crush the cost of file sync and share services. At BoxWorks 2014, CEO Aaron Levie and team identified their yellow brick road to Oz: Box plans to become a platform vendor of enterprise content and collaboration services and rise above the powerful competitors looking to commoditize it into oblivion.”
The big question now is how Wall St. will judge Box, especially because the initial hype around a Box IPO was huge until it filed its S-1 with the US Securities and Exchange Commission. Once that happened, even Box fans like GigaOm’s Om Malik called the company’s financials “horrid.”
Possible Considerations
Box has improved it financial management since then. It’s bleeding less money. Last year at this time it was losing $51.4 million. In the same quarter this year it lost $45.4 million. A great deal of the loss is due to sales and marketing expenses. It's now spending 97 cents for every dollar it brings in, down from the $1.38 it was spending previously. While it’s easy to gawk at those figures, the big spend could well be a “must do” for Box as it needs to gain market and mindshare before the Microsofts, Amazons, EMCs, VMWares and Googles of the world do.
We should add that we are in no way suggesting that Box has to go public right now. It has money to run for quite a while. But there may not be a better time (unless you can go back in time) given the increasing strength of its competitors.
Finally, it’s worth asking if Box will get acquired before or just after it IPO. We wrote about this possibility earlier this week and Constellation Research vice president Alan Lepofsky seems to share our sentiment. Tweeting about the Box IPO earlier today he wrote “My POV that does not necessarily mean an acquisition is off the table.”
Box is expected to start trading on the NYSE on Jan. 22 under the ticker symbol BOX. Here is a link to its Retail Roadshow video.
