The little bit of good news in Box's latest numbers


Box CEO Aaron Levie


Heading in the right direction, but too slowly?

Online storage startup Box revealed some new financial numbers today, and while the company is still burning through cash like a gambler in Vegas, the good news is that its revenues are on pace to double this year, while its expenses are growing much more slowly.

The numbers came in an amended IPO filing, which Box dropped this afternoon shortly after the Wall Street Journal reported that it had raised another $150 million from private investors at a valuation of $2.4 billion -- up from $2 billion from the last time it raised money in December. (Box confirmed the raise, from private-equity firm TPG and hedge fund Coatue Management.)

The funding will help Box stay liquid after market conditions forced it to delay its IPO, which was originally expected this summer. In Box's first quarter, which ended April 30, the company burned through almost $30 million in cash, and lost $38 million on revenue of $45 million.

The good news? Even if Box's revenue stopped growing today (unlikely) and remained stable for the rest of the year, its revenue would be up 45% from the previous year. Its sales and marketing expenses, which came in at $47 million -- still more than its revenue! -- would be up only 10% assuming stability through the rest of the year. Total expenses, which were $74 million, would be up only 15% assuming no further expansion.

(Another interesting note: Some of this "sales and marketing" expense is actually operational expenses -- including cost of running its data centers -- for its free customers. So it's not just salespeople and advertising.)

Box's other key metrics appear to be stable as well. Eight percent of users now constitute paying seats for the service (up from 7% in January, still with tons of upside), and 58% of its revenue came from enterprises (up from 57% in January). Retention was down just a notch at 135% (from 136%).

This is exactly what's supposed to happen with a successful SaaS company -- you spend a lot of money to acquire customers in the beginning, but the lifetime value of those customers ends up being worth many times more than you paid to get them on board. It's a different model from the old-fashioned software licensing model, where, if you can sell enough one-time licenses to cover your development costs, each additional sale is pure profit. (That's how Microsoft was able to enjoy such huge margins on Office and Windows for so many years.) 

The trouble is, Box is burning cash so fast it may never get to the point where it can realize the long-term value of those customers. Raising money after filing for an IPO is extremely rare. It's not the classic sign of a sustainable business. 

That said, IT managers thinking about an investment in Box shouldn't worry too much. Even if the company can't survive as a standalone entity, it's probably got enough customer traction to get acquired and live on within larger enterprise vendor such as HP, Microsoft, or Salesforce -- as much as that outcome would pain Box's founders. 

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