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> Which leaves me thinking that Box simply hasn't yet found a scalable and profitable business model, it's a large company to still be in the search stage. Qui

> Which leaves me thinking that Box simply hasn't yet found a scalable and profitable business model, it's a large company to still be in the search stage. Quite the opposite. They do have a scalable and profitable business today. The biggest component of their operating cost is Sales & Marketing. The Sales organization was the main cause for the costs increase in 2014, but it won't continue to grow linearly with revenue for much longer. Maybe a couple of years more, as they ramp up sales teams outside the US, and then it'll flatten out. On the other hand, the cost of Marketing is not really marketing. It's infrastructure + customer support for the free users. For now it's an investment, and they are hoping to monetize by converting into paying customers, or some indirect way in the future (e.g., advertising). Let's do a quick thought experiment. Turn it off its free users, and focus only on the 34K paying companies. Plus, to keep existing paying customers you don't need an army of 600+ salesmen, so you could get rid of them too. What is left is a company that is extremely profitable and cashflow positive, with a nice and sustainable business. Naturally pre-IPO companies are better-off by focusing on exponential growth, instead of profitability. The enterprise cloud storage market is a gold rush. Dropbox, Box, Amazon, Google, Microsoft and EMC all fighting for the same corporate dollars, so there's no time to waste. The next couple of years are pretty clear for Box and Dropbox. I think the interesting challenge will be in 2-3 years, with the upcoming commoditization of this market. When everyone has a Storage-as-a-Service product, and their apps and web interfaces became good enough, how to you convince IT folks to justify tens of thousands of dollars per year?

elefont2 13y ago
Okay, let's do that thought experiment. Set Sales and marketing expense (Currently $171 million) to zero. So, they would be making $2.3 million a year in profit. But you can't have your cake and eat it too. Without sales/marketing, you can't expect any growth. And expectation of future exponential growth is the trigger for these very high tech company valuations. Without that growth, I would value it like a blue chip company. The average P/E ratio of the S&P 500 is about 20 times earnings. That would put the valuation of the company at about $50 million - a far cry from what they want to value it at. Or, if you do it by sales, the average P/S ratio of the S&P 500 is about 1.7 times sales. Which puts their valuation at about $210 million - still a far cry from what they want to value it at. So, while they have a scalable and profitable business today, they don't have one which comes anywhere close to justifying their valuation outside the silicon valley bubble. Ergo, they better still be in the search stage.
- guiambros 13y ago
  Average S&P 500 P/E is hardly a good proxy to evaluate a nascent, fast-growing, enterprise technology company. The "E" part of the ratio is still too small to matter. Salesforce.com hit 6100x P/E in 2011. Facebook had 3500x P/E in 2013 (now at 100+). LinkedIn was over 950x until recently (now 770). Bottom line: as any other IPO, the valuation is not a reflection of how much the company is worth today, but what the company will be worth in the future. That's why growth is so important for them, and building a successful sales team is the single most important thing for Box now. They have the model, and it's proven scalable. Now they have to just execute it. Before everyone else.
- guiambros 13y ago
  Average S&P 500 P/E is hardly a good proxy to evaluate a nascent, fast-growing, enterprise technology company. The "E" part of the ratio is still too small to matter. Salesforce.com hit 6100x P/E in 2011. Facebook had 3500x P/E in 2013 (now at 100+). LinkedIn was over 950x until recently (now 770). Bottom line: as any other IPO, the valuation is not a reflection of how much the company is worth today, but what the company will be worth in the future. That's why growth is so important for them, and building a successful sales team is the single most important thing for Box now. They have the model, and it's proven scalable. Now they have to just execute it. Before everyone else.

elefont2 13y ago

Okay, let's do that thought experiment. Set Sales and marketing expense (Currently $171 million) to zero. So, they would be making $2.3 million a year in profit. But you can't have your cake and eat it too. Without sales/marketing, you can't expect any growth. And expectation of future exponential growth is the trigger for these very high tech company valuations. Without that growth, I would value it like a blue chip company. The average P/E ratio of the S&P 500 is about 20 times earnings. That would put the valuation of the company at about $50 million - a far cry from what they want to value it at. Or, if you do it by sales, the average P/S ratio of the S&P 500 is about 1.7 times sales. Which puts their valuation at about $210 million - still a far cry from what they want to value it at. So, while they have a scalable and profitable business today, they don't have one which comes anywhere close to justifying their valuation outside the silicon valley bubble. Ergo, they better still be in the search stage.

guiambros 13y ago
Average S&P 500 P/E is hardly a good proxy to evaluate a nascent, fast-growing, enterprise technology company. The "E" part of the ratio is still too small to matter. Salesforce.com hit 6100x P/E in 2011. Facebook had 3500x P/E in 2013 (now at 100+). LinkedIn was over 950x until recently (now 770). Bottom line: as any other IPO, the valuation is not a reflection of how much the company is worth today, but what the company will be worth in the future. That's why growth is so important for them, and building a successful sales team is the single most important thing for Box now. They have the model, and it's proven scalable. Now they have to just execute it. Before everyone else.
guiambros 13y ago
Average S&P 500 P/E is hardly a good proxy to evaluate a nascent, fast-growing, enterprise technology company. The "E" part of the ratio is still too small to matter. Salesforce.com hit 6100x P/E in 2011. Facebook had 3500x P/E in 2013 (now at 100+). LinkedIn was over 950x until recently (now 770). Bottom line: as any other IPO, the valuation is not a reflection of how much the company is worth today, but what the company will be worth in the future. That's why growth is so important for them, and building a successful sales team is the single most important thing for Box now. They have the model, and it's proven scalable. Now they have to just execute it. Before everyone else.