Prior to launching as a startup in 2005, Box began as an idea that co-founder and CEO Aaron Levie had for a marketing class — to bring the power of the internet to file-sharing. The concept may not feel revolutionary today, but back then, you could email a file if it was small enough, or you could put it on a thumb drive and physically deliver it to the recipient. Other options were limited.
It’s hard to believe now, but the original academic idea grew into a startup, and later a way to take on the entrenched enterprise content management industry.
Box, which began so modestly, reported an even $250 million in revenue for the most recent quarter, the third quarter of its fiscal 2023, putting it on a $1 billion run rate for the first time. (Notably, we were told back in 2014 or so by venture capitalist Jason Lemkin that Box would reach the $1 billion run rate figure one day; he also predicted that it wouldn’t be easy. Two points, Lemkin.)
“We’re really proud of the fact that this is our first billion-dollar revenue run rate quarter, so we can now say that we’ve crossed that billion revenue threshold, which is super exciting,” Levie told TechCrunch.
Revenue was up 12% in the quarter compared to last year, more modest growth than Box has posted in recent quarters. What contributed to the slowdown? Levie said growth was affected by the strong U.S. dollar, which is impacting many companies right now. Measured using older currency exchange rates (“constant currency,” in corporate speak), Box’s growth would have been 17%, much more in line with recent reports.
“It’s pretty material actually, and the way we talk about it is that previously if we’d sold the deal for $1, we’re getting 80 cents now on that deal. So that’s a material headwind,” he said.
But in spite of the economic challenges that everyone is facing right now, Box is taking advantage of the need for customers to work remotely, or at least spend significantly less time away from a conventional office, and Levie said his company’s solutions have become mission critical for customers.
“I think we’re being very strategic. I think the way companies manage content is very strategic, and so I think that puts us in a good position relative to other software companies because of that value proposition,” he said.
While he doesn’t have a crystal ball to see what budgets will look like moving forward, he does believe that Box remains in a strong position. The company seems to be looking at emphasizing profitability over growth, something that should please Wall Street investors right now. How did that translate into this quarter’s numbers? Let’s have a look.
Box’s most recent quarter
Shares of Box rose this week, thanks in part to its earnings report and partially due to software stocks rising as a group; dovish comments from the U.S. central bank gave investors a bit of confidence that interest rates may stop rising as quickly, meaning that assets that trade as the inverse of the price of money could be worth more down the road.
What matters for Box is that its recent earnings report did not stop its value rebound, even if the company did run into forex headwinds. In fact, shares of Box fell under the $11 per-share mark back in early 2020. Today, the company is worth nearly $30 per share. For a company that went public at $14 per share, it’s more than back in the black, at least in valuation terms.
We share all that with you to cast the Box results in proper lighting; yes, a great number of tech companies are posting slower growth. And many are taking lumps from investors thanks to a mixture of their expansion retardation and the fact that they lose gobs of money.
Box, in contrast, just reported the following for its most recent fiscal quarter (numbers in parentheses are constant-currency figures, compared to unadjusted year-over-year metrics):
- Revenue of $250.0 million, up 12% (17%).
- Remaining performance obligations and billings growth of 12% and 11%, respectively (20% apiece in constant-currency terms).
- Gross margins of 74.2%, an improvement of around 2.5 percentage points compared to year-ago metrics.
- Operating income of $13.4 million, up from an operating loss of $11.1 million in the year-ago period.
- Net income of $5.0 million, up from a loss of $13.9 million in the year-ago quarter.
Box’s growth slowed due to the value of currencies changing, but the company still managed to post better gross margins (a profit antecedent, but one that really matters) and unadjusted operating profit and net income. That’s pretty darn good.
Recall that we’re seeing investors reconsider the value of tech stocks as growth loses some of its valuation shine and profit takes on a more central role in valuing tech stocks. Box, with free cash flow of $55.0 million in its most recent quarter — up from $31.2 million in the same quarter one year ago — is racking up profitability despite forex headwinds.
It appears that investors are more than willing to trade some growth — temporarily, at least — for profits in Box’s case. That’s why we reckon its shares are heading higher. If Box can do this well while running uphill, what may come later? Well, if a slowing pace of rate increases leads to expected results, we could see the U.S. dollar lose some of its luster. (Lower rates in the U.S. could make investments in bonds denominated in other currencies more attractive; this could, in turn, boost the value of those currencies, lessening the dollar’s current strength and helping tech companies that sell abroad to book more dollar-denominated revenues.)
That could limit forex headwinds at Box and other tech companies. If that happens, well, we could see growth rates increase at any U.S.-domiciled tech company that sells internationally. If that happens, Box will be well situated to capitalize on the shift. Investors seem to be betting on that coming to pass.
Of course, with today’s labor report, the dollar is hardly in any danger of a near-term devaluation that would fully shake up the above dynamic. So for software companies selling internationally, a focus on constant currency revenue and adjusted profits should remain for a while yet.
In spite of all that, Box has reached a clear revenue milestone with a $1 billion run rate, and not a lot of SaaS companies can say that.