Box financial results look good on the surface, but analysts unconvinced

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It has been a week of good and bad news for enterprise cloud storage provider Box with the announcement of first quarter financial results. The company announced record first quarter revenue of $90.2 million (£62m), an increase of 37% from this time last year – but because renewals were down, analysts came out of the quarter feeling somewhat unconvinced.

“We had a solid start to fiscal 2017,” said Box CEO Aaron Levie in the firm’s earnings call, as transcribed by Seeking Alpha. “We had strong customer momentum adding more than 5000 new customers in Q1, our largest number of new customers in a quarter. In addition, we continue to improve our already best in class customer retention with our customer churn rate improving to just below 3%.

“These metrics showcase how valuable and essential Box is to our growing global customer base,” he added.

Other results included billings in Q117 of $75.9m, an increase of 9% year over year, and GAAP operating loss of $38.6m representing 43% of revenue compared to 71% in 2015, while customer wins and extensions cited by Box included Airbnb, Brooks Brothers, and The Whirlpool Corporation.

Levie cited partnerships as key to Box’s strength going forward, also revealing the company will shortly be hiring a chief marketing officer with ’20 years of enterprise technology experience’. “As we’re becoming a more strategic investment for our customers, larger transactions are shifting towards later in the year,” Levie said. “Looking ahead, underlying demand for Box remains very strong and our competitive position in the market has never been better.

“Coming off of Box World Tour where we engaged with thousands of customers and prospective clients, we created record sales pipeline in the quarter with several seven figure deals in the mix,” he added. “This has been driven by the growing demand for a modern approach to enterprise content management, our differentiated product offerings and our maturing partnerships that are becoming an integral part of our go-to-market strategy.”

All good news, one would assume. Yet yesterday, as reported by Bloomberg, JPMorgan Chase & Co analyst Mark Murphy downgraded the cloud software vendor’s stock to neutral. “Short seller’s wet dreams coming true as Box gets hammered for a beat,” as Diginomica put it. “Box turned in a decent quarter with a broadly in-line outlook,” wrote Den Hewlett. “The problem is that on the call, the Box team didn’t seem as assured as analysts were likely requiring in order to maintain the market’s already fragile view of momentum company stocks.”

“We are confident in our growth opportunity, driven by our product differentiation and expanding market, and we remain committed to achieving positive free cash flow in the fourth quarter of this fiscal year,” said Box CFO Dylan Smith.

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