Box Shares Soar as IPO Shows Investor Appetite for the Cloud

After putting its plans to go public last year on hold, Box's widely anticipated IPO got out of the starting gate today with its shares up as much as 70 percent midday Friday. The company plans to use the estimated $180 million in proceeds to maintain operations and invest in capital infrastructure to grow its enterprise cloud offering.

Founder and CEO Aaron Levie launched the company in 2005 with the aim of offering an alternative to large premises-based enterprise content management systems. Over the years, Levie publicly put a target on the back of SharePoint. Levie's ambitions earlier this decade to establish Box as a SharePoint killer peaked before Office 365 and OneDrive for Business arrived. While Levie still has strong aspirations to become the primary storage and file sharing service for businesses, the market is more challenging now that Office 365 with OneDrive for Business, Google Drive and others are widely entrenched within enterprises.

For its part, Box has always targeted large enterprises, boasting such customers as GE, Toyota, Eli Lilly, Boston Scientific, Procter & Gamble, Chevron, Schneider Electric and Stanford University. Speaking on the New York Stock Exchange trading floor with CNBC, Levie emphasized that the best opportunity for the company lies with targeting large enterprises and mid-size firms with 500 to 1,000 employees.

Amid enthusiasm for Box, there's also plenty of skepticism among analysts. The company incurs large customer acquisition and retention costs, which include "customer success managers" assigned to those with contracts for the life of the relationship, according to the company's S1 filing with the Securities and Exchange Commission (SEC). Moreover, Box is unprofitable with no target date for turning a profit in sight. According to the filing, Box recorded a $169 million loss for the fiscal year ended January 31, 2014 with a deficit of $361 million.

Also in its filing, Box points to competitors including EMC, IBM and Microsoft (Office 365 and OneDrive), Citrix (ShareFile), Dropbox and Google (Google Drive). There are plenty of other rivals both entrenched and new players such as Acronis, Carbonite, Own Cloud and CloudBerry Lab, among numerous others.

Now that Box believes it doesn't have to displace SharePoint and OneDrive for Business in order to succeed, the company last summer forged an agreement to collaborate with Microsoft. The collaboration pact ensured that Office 365 could use Box to store and synchronize files as an alternative to OneDrive, both of which now offer unlimited storage for paying customers. Microsoft and Box rival Dropbox forged a similar arrangement.

Box also offers APIs for developers to build applications using Box as the content layer, which lets users store content from a given application to centrally and securely store it within its service.  Salesforce.com and NetSuite are among those that have used the API to tie their offerings together. In addition, Box last month added a new enterprise mobility management service, Box for Enterprise Mobility Management (EMM), which fits into the company's new Box Trust effort. That initiative consists of a string of partnerships with security vendors and those with data loss protection management tools. Symantec, Splunk, Palo Alto Networks, Sumo Logic and OpenDNS join existing partners Skyhigh Networks, Hewlett Packard, Okta, MobileIron, CipherCloud, Recommind, Ping Identity, Netskope, OneLogin, Guidance Software and Code Green Networks.

It remains to be seen if Box and its chief rival Dropbox can go it alone or if they'll become attractive takeover candidates. Of course that will depend on their ability to grow and ultimately turn a profit. Do you see Box or Dropbox becoming your organization's primary file store and sharing platform?

Posted by Jeffrey Schwartz on 01/23/2015 at 12:27 PM