Prevailing wisdom states that as an enterprise SaaS company evolves, there’s a tendency to sacrifice profitability for growth — understandably so, especially in the early days of the company. At some point, however, a company needs to become profitable.
Box has struggled to reach that goal since going public in 2015, but yesterday, it delivered a mostly positive earnings report. Wall Street seemed to approve, with the stock up 6.75% as we published this article.
Box CEO Aaron Levie says the goal moving forward is to find better balance between growth and profitability. In his post-report call with analysts, Levie pointed to some positive numbers.
“As we shared in October [at BoxWorks], we are focused on driving a balance of long-term growth and improved profitability as measured by the combination of revenue growth plus free cash flow margin. On this combined metric, we expect to deliver a significant increase in FY ’21 to at least 25% and eventually reaching at least 35% in FY ’23,” Levie said.
Growing the platform
Part of the maturation and drive to profitability is spurred by the fact that Box now has a more complete product platform. While many struggle to understand the company’s business model, it provides content management in the cloud and modernizing that aspect of enterprise software. As a result, there are few pure-play content management vendors that can do what Box does in a cloud context.
Over the last year, the company has expanded its platform to include Box Shield, its security offering, and Box Relay, a workflow tool. These products filled major holes in the company’s toolbox and expanded the opportunity to sell Box to larger companies that need these types of tools to embrace the cloud more fully.
Levie says that this is helping drive bigger sales into existing customers. While the company saw a a slight drop-off in larger deals this quarter, which he attributed to slower growth EMEA, the deals they landed were driven by these new products. “If you just look at the customer base that we already have, our ability to go in and make sure that they’re leveraging the full power of our platform — products like Box Shield, Relay and Governance — and pull those products together, we’re definitely at a stage where we can drive more efficient growth because we have the customers and we have a repeatable sales motion,” he said.
Levie adds that it also helps to have 97,000 customers, since they can begin marketing new products to a community that already understands the value Box delivers.
“We believe we can drive more efficient growth, and frankly in the long run, even higher growth rates because of our product portfolio. That means we can now drive greater efficiency in our go-to-market strategy because of the fact that we now have nearly 100,000 customers that we can go and sell into,” he said.
Thinking outside the box
While recognition from analysts might not be a true bellwether of success, it doesn’t hurt that IDC, Gartner and Forrester have all recognized Box as a leader or visionary, a point that might matter to enterprise buyers seeking reassurance as they go through the sales cycle.
Let’s not forget that the company is under increasing pressure to drive profitability since Starboard Value bought a 7.5% stake in September, but Levie says the pressure to perform has always been there. “We hold ourselves accountable to driving strong results, whether that’s growth or profitability, and I think to have outside investors that that push you and hold you accountable to that is a really healthy thing,” he said.
Levie says Box is planning to expand the Box family of products in three main areas: security, workflow and integration with other enterprise tools, particularly other SaaS tools. “We want to make sure we can help our customers with their multi-cloud IT environment and work across all the applications that they’re using, and you’re going to see just a ton of products coming out in the coming year in those three areas,” he said.
This is a pivotal time for Box: with Starboard Value pushing for higher profits, the company is on a run rate that surpassed $700 million for the first time. With a more complete platform, it now has the tools in place to continue to drive revenue and develop into a highly successful enterprise SaaS company, one that was able to push past its growth phase and into profitability. Just as all companies should, eventually.