(c)iStock.com/ngkaki
“IPOs are one of the great, mysterious Wall Street spectacles,” Shawn Tully wrote in Forbes earlier this week. “The praise is overwhelming, the definition of ‘success’ is baffling, and anyone who questions the system is taken for a dullard.”
This might explain why everyone and their dog has attempted to shed light on one of tech’s most eagerly anticipated public offerings. So let’s start off with the facts. Box secured a $1.7 billion valuation in its IPO, raising about $175 million on its first day. Shares soared to a high of $24.73, significantly higher than its initial $14 price.
This is despite in its updated filing Box noted profitability at -137% and sales and marketing at 137% compared to revenue. Tomasz Tunguz, Redpoint venture capitalist, noted that in today’s market, which “values revenue growth and seemingly ignores profitability”, Box is actually in a better position to capitalise than many believe.
Indeed, CEO Aaron Levie was on the warpath as he described how many pundits misunderstood Box’s business model. He told CNBC: “The thing that’s largely misunderstood about our business is we’re not in the consumer space. Box helps manage corporate data and corporate information for the world’s largest companies.”
He added: “We’re participating in a once in a lifetime transition from on premise computing to cloud computing. When people think, when the cost of storage goes down over time as an example, that doesn’t actually relate to our business because we give unlimited storage, and as the price of storage goes down that actually benefits our infrastructure costs.
“That’s one of the misunderstood dynamics of the business.”
Not everyone is in agreement, however. David Lavenda ,VP of product strategy at harmon.ie, described the IPO as “the end of Box.”
“What happened so far is no surprise,” he said. “The investors would have lined up folks before they pulled the trigger. It’s what happens down the road that counts.
“Continuing to invest in sales for a commodity offering doesn’t make sense,” Lavenda added. “If Box doesn’t buy companies or develop new products with these funds, it won’t maintain its valuation.”
Vineet Jain is the CEO of enterprise file share and sync provider Egnyte, considered more of a competitor to Box than its traditional rival, Dropbox. When the firm launched in Europe back in April, when initial rumours about Box’s IPO were rife, Jain told this publication that cloud valuations were “completely out of whack”, and “basic financial sense has to creep back in.”
He said: “Box will succeed on the low end of the market. Egnyte is positioned to succeed as the high end of the market, and of course Dropbox is poised to take on the consumer market.”
The enterprise focus, with big seat customers, is of course an evident one for Box. The company is far greater than a mere cloud storage player; content management and collaboration for mobile, as evinced in Box Notes, is significant.
Shares last closed at $22.60. Do you agree with these comments?