Business Public Markets

Box’s FQ4 Earnings And New SaaS Revenue Multiple Benchmarks

Today after the bell Box, an enterprise file sharing and productivity company, reported its fiscal 2018 fourth-quarter earnings, including revenue of $136.7 million and adjusted earnings per share of -$0.06. Analyst consensus expected Box to report an adjusted $0.08 per-share loss off revenue of $136.71 million.

Following the mixed-beat, shares in Box are sharply lower. At the time of writing, Box equity is off over 10 percent to under $22 per share. Before releasing earnings today, Box rose over 1.5 percent in regular trading, dancing around all-time highs before the closing bell.

Why the massive decline? Analysts had expected the company to predict a $0.08, adjusted per-share loss in the next quarter, along with revenue of $144.27 million. Box, in its release, indicates that it expects revenue of $139 to $140 million, which is lower due to “the new revenue recognition standard (‘ASC 606’).” Box notes that it is “adopting […]  beginning with its fiscal year 2019 using the modified retrospective transition method.”

However, the firm notes that without the change in accounting standards, it would have expected revenue of between $142 and $143 million, which would have also fallen short of expectations.

In short, Box’s decelerating revenue caught investors by surprise, and its recent flirtations with all-time highs have been set back. Certainly, the results set Box up for an easier beat in the current quarter, but it’s paying for future flexibility in lost value today.

What All That Means

Box’s missed top-line forecast matters to investors because it deprecates the implied value of future cash flows. That’s because if Box is seeing greater-than-expected slowdown in revenue growth now the firm’s revenues will grow more slowly than anticipated. And, frankly, the firm’s sequential-quarter revenue gain it has promised is lackluster.

So, down goes the value of its shares today as its future looks less promising. This is how a company can mostly beat expectations and still trip after reporting earnings.

For Dropbox, this is a material disappointment. Box is now worth less than it was when Dropbox filed and has a higher revenue base. This deprecates its trailing revenue multiple, and its implied-ARR multiple, two numbers that Dropbox wants as high as they can be. Dropbox, a comparable company to Box, in many ways regardless of how much it wants to shout that it isn’t, will now have a harder time convincing Wall Street to pay the premium needed to get it to a $10 billion valuation, as Box has now effectively lowered the floor.

Mostly. At play here is that Dropbox hasn’t yet disappointed investors with slower-than-expected growth. So, if Dropbox can convince investors that the smaller multiples that they are willing to pay for Box’s future incomes don’t apply to it, given its higher base growth rate, perhaps this isn’t as bad as it looks.

At the same time, boats and tides tend to fluctuate together.

So, what is Box’s implied ARR? Given its fiscal fourth quarter top line, about $546.8 million. Every online financial data provider lists Box’s current market cap at about $3.3 billion. It isn’t instantly clear if that is inclusive of Box’s after-hours declines.

If it is, Box’s new ARR multiple is just a hair over 6x. If it isn’t, Box’s ARR multiple drops to 5.4x. That’s not good for Dropbox.

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