“Timing is everything” is a piece of wisdom with a number of applications. One of them, of course, is the public markets, something that Box and its CEO Aaron Levie know well by now.
After originally registering with the SEC for its IPO back in March, the data storage company will finally take the plunge as a publicly traded entity later this month. Box will look to raise at least $137.5 million, selling 12,500,000 shares on the New York Stock Exchange, with an early price range of between $11 and $13.
Well that certainly took a while.
— Aaron Levie (@levie) January 9, 2015
As its $482.5 million deficit continues to escalate, and the market for data storage becomes more commoditized, the pressure is on Box to succeed in its IPO. The company will use half of the funds for sales and marketing purposes, an area in which Box has spent most of its money in the past. In the nine months ending October 31, the storage provider recorded revenue of $153.8 million, but sales and marketing expenditure of $152.3 million for the same period. Total expenditures totaled $242 million meaning a loss of $120.8 million for those nine months.
However, those figures should not spell complete doom and gloom, and are not likely to scare off investors. Box already boasts an impressive client list, and claims a client retention rate of 130% (due to upselling existing clients), meaning the money spent on marketing and sales won’t need to continue indefinitely, as the company will be able to rely on its existing subscriptions from major enterprises.
For the impending IPO, a buoyant market works in its favor. When Box was first preparing to go public, in May of last year, technology stocks, especially those in cloud services, were on the slide. Workday, an HR and financial management software company, was trading at around 20% less than its opening price, while stocks in SAP and Salesforce had lost 10 and 15% of their value from the beginning of the year respectively.
Couple the performance of these comparables with the problems facing Box, including a burn rate on sales and marketing expenditures that at the time surpassed total revenues, and the company was wise to postpone. Instead, it raised $150 million from TPG and Coatue Management at a reported $2.4 billion valuation.
Over six months later and the conditions for an IPO are decidedly better, even if the company has shed some of its value in the intervening period. Outside the firm, the company can expect to benefit from the rising tide of tech stocks, led by the strong market debuts of Lending Club, Hortonworks, and New Relic at the end of last year. For its own part, Box has reined in its expenses and narrowed its quarterly losses. But perhaps the main driver of the decision to go public is to do so before Dropbox.
Like Hortonworks, which filed and began trading before its bigger and better funded competitor Cloudera, Box might have realized that the line of credit to be found in the private markets for data storage and management had been maxed out. And if marketing is a focus, getting BOX on the Big Board could be the best strategy yet.