May
04
2021
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Starboard Value puts Box on notice that it’s looking to take over board

Activist investor Starboard Value is clearly fed up with Box and it let the cloud content management know it in no uncertain terms in a letter published yesterday. The firm, which bought a 7.7% stake in Box two years ago, claims the company is underperforming, executing poorly and making bad business decisions — and it wants to inject the board of directors with new blood.

While they couched the letter in mostly polite language, it’s quite clear Starboard is exasperated with Box. “While we appreciate the dialogue we have had with Box’s management team and Board of Directors (the “Board”) over the past two years, we have grown increasingly frustrated with continued poor results, questionable capital allocation decisions, and subpar shareholder returns,” Starboard wrote in its letter.

Box, as you can imagine, did not take kindly to the shot across its bow and responded in a press release that it has bent over backwards to accommodate Starboard, including refreshing the board last year when they added several members, whom they point out were approved by Starboard.

“Box has a diverse and independent Board with directors who bring extensive technology experience across enterprise and consumer markets, enterprise IT, and global go-to-market strategy, as well as deep financial acumen and proven track records of helping public companies drive disciplined growth, profitability, and stockholder value. Furthermore, seven of the ten directors on the Box Board will have joined the Board within the last three years,” the company wrote in a statement. In other words, Box is saying it already has injected the new blood that Starboard claims it wants.

Box recently got a $500 million cash injection from KKR, widely believed to be an attempt to bulk up cash reserves with the goal of generating growth via acquisition. Starboard was particularly taken aback by this move, however. “The only viable explanation for this financing is a shameless and utterly transparent attempt to “buy the vote” and shows complete disregard for proper corporate governance and fiscal discipline,” Starboard wrote.

Alan Pelz-Sharpe, founder and principal analyst at Deep Analysis, a firm that closely tracks the content management market, says the two sides clearly aren’t aligned, and that’s not likely to change. “Starboard targeted and gained a seat on the board at Box at a difficult time for the firm, that’s the modus operandi for activist investors. Since that time there has clearly been a lot of improvements in terms of Box’s financial goals. However, there is and will remain a misalignment between Starboard’s goals, and Box led by Levie as a whole. Though both would like to see the share price rise, Starboard’s end goal is most likely to see Box acquired, sooner rather than later, and that is not Box’s goal,” he said.

Starboard believes the only way to resolve this situation is to inject the board with still more new blood, taking a swipe at the Box leadership team while it was at it. “There is no good reason that Box should be unable to deliver improved growth and profitability, at least in-line with better performing software companies, which, in turn, would create significant shareholder value,” Starboard wrote.

As such the firm indicated it would be putting up its own slate of board candidates at the company’s next board meeting. In the tit for tat that has been this exchange, Box indicated it would be doing the same.

Meanwhile Box vigorously defended its results. “In the past year, under the oversight of the Operating Committee, the company has made substantial progress across all facets of the business — strategic, operational and financial — as demonstrated by the strong results reported for the full year of fiscal 2021,” the company wrote, pointing to its revenue growth last fiscal year as proof of the progress, with revenue of $771 million up 11% year over year.

It’s unclear how this standoff will play out, but clearly Starboard wants to take over the Board and have its way with Box, believing that it can perform better if it were in charge. That could result ultimately, as Pelz-Sharpe suggested, in Box being acquired.

We would appear to heading for a showdown, and when it’s over, Box could be a very different company, or the current leadership could assert control once and for all and we could proceed with Box’s current growth strategy still in place. Time will tell which is the case.

Apr
08
2021
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Industry experts bullish on $500M KKR investment in Box, but stock market remains skeptical

When Box announced it was getting a $500 million investment from private equity firm KKR this morning, it was hard not to see it as a positive move for the company. It has been operating under the shadow of Starboard Value, and this influx of cash could give it a way forward independent of the activist investors.

Industry experts we spoke to were all optimistic about the deal, seeing it as a way for the company to regain control, while giving it a bushel of cash to make some moves. However, early returns from the stock market were not as upbeat as the stock price was plunging this morning.

Alan Pelz-Sharpe, principal analyst at Deep Analysis, a firm that follows the content management market closely, says that it’s a significant move for Box and opens up a path to expanding through acquisition.

“The KKR move is probably the most important strategic move Box has made since it IPO’d. KKR doesn’t just bring a lot of money to the deal, it gives Box the ability to shake off some naysayers and invest in further acquisitions,” Pelz-Sharpe told me, adding “Box is no longer a startup its a rapidly maturing company and organic growth will only take you so far. Inorganic growth is what will take Box to the next level.”

Dion Hinchcliffe, an analyst at Constellation Research, who covers the work from home trend and the digital workplace, sees it similarly, saying the investment allows the company to focus longer term again.

“Box very much needs to expand in new markets beyond its increasingly commoditized core business. The KKR investment will give them the opportunity to realize loftier ambitions long term so they can turn their established market presence into a growth story,” he said.

Pelz-Sharpe says that it also changes the power dynamic after a couple of years of having Starboard pushing the direction of the company.

“In short, as a public company there are investors who want a quick flip and others that want to grow this company substantially before an exit. This move with KKR potentially changes the dynamic at Box and may well put Aaron Levie back in the driver’s seat.”

Josh Stein, a partner at DFJ and early investor in Box, who was a long time board member, says that it shows that Box is moving in the right direction.

“I think it makes a ton of sense. Management has done a great job growing the business and taking it to profitability. With KKR’s new investment, you have two of the top technology investors in the world putting significant capital into going long on Box,” Stein said.

Perhaps Stein’s optimism is warranted. In its most recent earnings report from last month, the company announced revenue of $198.9 million, up 8% year-over-year with FY2021 revenue closing at $771 million up 11%. What’s more, the company is cash-flow positive, and has predicted an optimistic future outlook.

“As previously announced, Box is committed to achieving a revenue growth rate between 12-16%, with operating margins of between 23-27%, by fiscal 2024,” the company reiterated in a statement this morning.

Investors remains skeptical, however, with the company stock price getting hammered this morning. As of publication the share price was down over 9%. At this point, market investors may be waiting for the next earnings report to see if the company is headed in the right direction. For now, the $500 million certainly gives the company options, regardless of what Wall Street thinks in the short term.

Apr
08
2021
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KKR hands Box a $500M lifeline

Box announced this morning that private equity firm KKR is investing $500 million in the company, a move that could help the struggling cloud content management vendor get out from under pressure from activist investor Starboard Value.

The company plans to use the proceeds in what’s called a “Dutch auction” style sale to buy back shares from certain investors for the price determined by the auction, an activity that should take place after the company announces its next earnings report in May. This would presumably involve buying out Starboard, which took a 7.5% stake in the company in 2019.

Last month Reuters reported that Starboard could be looking to take over a majority of the board seats when the company board meets in June. That could have set them up to take some action, most likely forcing a sale.

While it’s not clear what will happen now, it seems likely that with this cash, they will be able to stave off action from Starboard, and with KKR in the picture be able to take a longer-term view. Box CEO Aaron Levie sees the move as a vote of confidence from KKR in Box’s approach.

“KKR is one of the world’s leading technology investors with a deep understanding of our market and a proven track record of partnering successfully with companies to create value and drive growth. With their support, we will be even better positioned to build on Box’s leadership in cloud content management as we continue to deliver value for our customers around the world,” Levie said in a statement.

Under the terms of the deal, John Park, head of Americas Technology Private Equity at KKR, will be joining the Box board of directors. The company also announced that independent board member Bethany Mayer will be appointed chairman of the board, effective on May 1st.

Earlier this year, the company bought e-signature startup SignRequest, which could help open up a new set of workflows for the company as it tries to expand its market. With KKR’s backing, it’s not unreasonable to expect that Box, which is cash flow positive, could be taking additional steps to expand the platform in the future.

Box stock was down more than 8% premarket, a signal that perhaps Wall Street isn’t thrilled with the announcement, but the cash influx should give Box some breathing room to reset and push forward.

Aug
27
2020
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Box benefits from digital transformation as it raises its growth forecast

Box has always been a bit of an enigma for Wall Street, and perhaps for enterprise software in general. Unlike vendors who shifted to the cloud tools like HR, CRM or ERP, Box has been building a way to manage content in the cloud. It’s been a little harder to understand than these other enterprise software stalwarts, but slowly but surely Box has shifted into a more efficient, and dare we say, profitable public company.

Yesterday the company filed its Q2 2021 earnings report and it was solid. In fact, the company reported revenue of $192.3 million. That’s an increase of 11% year over year and it beat analyst’s expectations of $189.6 million, according to the company. Meanwhile the guidance looked good too, moving from a range of $760 to $768 million for the year to a range of $767 to $770 million.

All of this points to a company that is finding its footing. Let’s not forget, Starboard Value bought a 7.5% stake in the company a year ago, yet the activist investor has mostly stayed quiet and Box seems to be rewarding its patience as the pandemic acts as a forcing function to move customers to the cloud faster — and that seems to be working in Box’s favor.

Let’s get profitable

Box CEO Aaron Levie has not been shy about talking about how the pandemic has pushed companies to move to the cloud much more quickly than they probably would have. He said as a digital company, he was able to move his employees to work from home and remain efficient because of tools like Slack, Zoom, Okta and, yes, Box were in place to help them do that.

All of that helped keep the business going, and even thriving, through the extremely difficult times the pandemic has wrought. “We’re fortunate about how we’ve been able to execute in this environment. It helps that we’re 100% SaaS, and we’ve got a great digital engine to perform the business,” he said.

He added, “And at the same time, as we’ve talked about, we’ve been driving greater profitability. So the efficiency of the businesses has also improved dramatically, and the result was that overall we had a very strong quarter with better growth than expected and better profitability than expected. As a result, we were able to raise our targets on both revenue growth and profitability for the rest of the year,” Levie told TechCrunch.

Let’s get digital

Box is seeing existing customers and new customers alike moving more rapidly to the cloud, and that’s working in its favor. Levie believes that companies are in the process of reassessing their short and longer term digital strategy right now, and looking at what workloads they’ll be moving to the cloud, whether that’s cloud infrastructure, security in the cloud or content.

“Really customers are going to be trying to find a way to be able to shift their most important data and their most important content to the cloud, and that’s what we’re seeing play out within our customer base,” Levie said.

He added, “It’s not really a question anymore if you’re going to go to the cloud, it’s which cloud are you going to go to. And we’ve obviously been very focused on trying to build that leading platform for companies that want to be able to move their data to a cloud environment and be able to manage it securely, drive workflows on it, integrate it across our applications and that’s what we’re seeing,” he said.

That translated into a 60% increase quarter over quarter on the number of large deals over $100,000, and the company crossed 100,000 customers globally on the platform in the most recent quarter, so the approach seems to be working.

Let’s keep building

As with Salesforce a generation earlier, Box decided to build its product set on a platform of services. It enabled customers to tap into these base services like encryption, workflow and metadata and build their own customizations or even fully functional applications by taking advantage of the tools that Box has already built.

Much like Salesforce president and COO Bret Taylor told TechCrunch recently, that platform approach has been an integral part of its success, and Levie sees it similarly for Box. calling it fundamental to his company’s success, as well.

“We would not be here without that platform strategy,” he said. “Because we think about Box as a platform architecture, and we’ve built more and more capabilities into that platform, that’s what is giving us this strategic advantage right now,” he said.

And that hasn’t just worked to help customers using Box, it also helps Box itself to develop new capabilities more rapidly, something that has been absolutely essential during this pandemic when the company has had to react quickly to rapidly changing customer requirements.

Levie is 15 years into his tenure as CEO of Box, but he still sees a company and a market that is just getting started. “The opportunity is only bigger, and it’s more addressable by our product and platform today than it has been at any point in our history. So I think we’re still in the very early stages of digital transformation, and we’re in the earliest stages for how document and content management works in this modern era.”

Sep
03
2019
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Starboard Value takes 7.5% stake in Box

Starboard Value, LP revealed in an SEC Form 13D filing last week that it owns a 7.5% stake in Box, the cloud content management company.

It is probably not a coincidence that Starboard Value looks for undervalued stocks. Box stock has been on a price roller coaster ride since it went public in 2015 at a price of $14.00 per share before surging to $23.23 per share. It had high share price of $28.12 in May 2018, but the price dipped into the teens in March and was at $14.85 as we went to press. It has a 52-week low price of $12.46 per share.

Screenshot 2019 09 03 17.22.05

 

The company, which began life as a consumer storage company, made the transition to enterprise software several years after it launched in 2005. It raised more than $500 million along the way, and was a Silicon Valley SaaS darling until it filed its S-1 in 2014.

The S-1 revealed massive sales and marketing spending, and critics came down hard on the company. That led to one of the longest IPO delays in memory, taking nine months from the time the company filed until it finally had its IPO in January 2015.

In its most recent earnings report last week, Box announced  $172.5 million in revenue for the quarter, putting it on a run rate close to $700 million.

Aaron Levie href=”https://techcrunch.com/2019/07/08/box-ceo-aaron-levie-is-coming-to-tc-sessions-enterprise/”> will be appearing at TechCrunch Sessions: Enterprise on Thursday.

We emailed both Starboard Value and Box for comments, but neither has responded as we went to publish. If this changes, we will update the article.

Feb
27
2019
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Box fourth quarter revenue up 20 percent, but stock down 22 percent after hours

By most common sense measurements, Box had a pretty good earnings report today, reporting revenue up 20 percent year over year to $163.7 million. That doesn’t sound bad, yet Wall Street was not happy with the stock getting whacked, down more than 22 percent after hours as we went to press. It appears investors were unhappy with the company’s guidance.

Part of the problem, says Alan Pelz-Sharpe, principal analyst at Deep Analysis, a firm that watches the content management space, is that the company failed to hit its projections, combined with weaker guidance; a tough combination, but he points out the future does look bright for the company.

Box did miss its estimates and got dinged pretty hard today; however, the bigger picture is still of solid growth. As Box moves more and more into the enterprise space, the deal cycle takes longer to close and I think that has played a large part in this shift. The onus is on Box to close those bigger deals over the next couple of quarters, but if it does, then that will be a real warning shot to the legacy enterprise vendors as Box starts taking a chunk out of their addressable market,” Pelz-Sharpe told TechCrunch.

This fits with what company CEO Aaron Levie was saying. “Wall Street did have higher expectations with our revenue guidance for next year, and I think that’s totally fair, but we’re very focused as a company right now on driving reacceleration in our growth rate and the way that we’re going to do that is by really bringing the full suite of Box’s capabilities to more of our customers,” Levie told TechCrunch.

Holger Mueller, an analyst with Constellation Research says failing to hit guidance is always going to hurt a company with Wall Street. “It’s all about hitting the guidance, and Box struggled with this. At the end of the day, investors don’t care for the reasons, but making the number is what matters. But a booming economy and the push to AI will help Box as enterprises need document automation solutions,” Mueller said.

On the positive side, Levie pointed out that the company achieved positive non-GAAP growth rate for the first time in its 14-year history, with projections for the first full year of non-GAAP profitability for FY20 that it just kicked off.

The company was showing losses on a cost per share of 14 cents a share for the most recent quarter, but even that was a smaller loss than the 24 cents a share from the previous fiscal year. It would seem that the revenue is heading generally in the correct direction, but Wall Street did not see it that way, flogging the cloud content management company.

Chart: Box

Wall Street tends to try to project future performance. What a company has done this quarter is not as important to investors, who are apparently not happy with the projections, but Levie pointed out the opportunity here is huge. “We’re going after 40 plus billion dollar market, so if you think about the entirety of spend on content management, collaboration, storage infrastructure — as all of that moves to the cloud, we see that as the full market opportunity that we’re going out and serving,” Levie explained.

Pelz-Sharpe also thinks Wall Street could be missing the longer-range picture here. “The move to true enterprise started a couple of years back at Box, but it has taken time to bring on the right partners and infrastructure to deal with these bigger and more complex migrations and implementations,” Pelz-Sharpe explained. Should that happen, Box could begin capturing much larger chunks of that $40 billion addressable cloud content management market, and the numbers could ultimately be much more to investor’s liking. For now though, they are clearly not happy with what they are seeing.

Aug
29
2018
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Box builds a digital hub to help fight content fragmentation

The interconnectedness of the cloud has allowed us to share content widely with people inside and outside the organization and across different applications, but that ability has created a problem of its own, a kind of digital fragmentation. How do you track how that piece of content is being used across a range of cloud services? It’s a problem Box wants to solve with its latest features, Activity Stream and Recommended Apps.

The company made the announcements at BoxWorks, its annual customer conference being held this week in San Francisco,

Activity Stream provides a way to track your content in real time as it moves through the organization, including who touches it and what applications it’s used in, acting as a kind of digital audit trail. One of the big problems with content in the cloud age is understanding what happened to it after you created it. Did it get used in Salesforce or ServiceNow or Slack? You can now follow the path of your content and see how people have shared it, and this could help remove some of the disconnect people feel in the digital world.

As Jeetu Patel, Box’s Chief Product and Chief Strategy Officer points out, an average large company could have more than a thousand apps and there is no good way to connect the dots when it comes to tracking unstructured content and getting a unified view of the digital trail.

“We integrate with over 1400 applications, and as we integrate with those applications, we thought if we could surface those events, it would be insanely useful to our users,” he said. Patel sees this as the beginning of an important construct, the notion of a content hub where you can see the entire transaction record associated with a piece of content.

Activity Stream sidebar inside Box. Photo: Box

But Box didn’t want to stop with just a laundry list of the connections. It also created deep links into the applications being used, so a user can click a link, open the application and view the content in the context of that other application. “It seems like Box was a logical place to get a bird’s eye view of how content is being used,” Patel said, explaining Box’s thinking in creating this feature.

A related feature is a list of Recommended Apps. Based the Box Graph, and what Box knows about the user, the content they use, and how it’s interconnected with other cloud apps, it also displays a list of recommended apps right in the Box interface. This lets users access those applications in the context of their work, so for instance, they could share the content in Slack right from the document.

Recommended Apps bar inside Box. Photo: Box

For starters, Recommended Apps integrations include G Suite apps, Slack, Salesforce, DocuSign and Netsuite, but Patel says anyone who is integrated with the web app via the API will start showing up in Activity Stream.

While the products were announced today, Box is still working out the kinks in terms of how this will work. They expect these features to be available early next year. If they can pull this off, it will go a long way toward solving the digital fragmentation problem and making Box the content center for organizations.

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