I'm not sure how anyone can look at a growing history of losses due to increasing customer acquisition costs, in an industry with numerous competitors, and want to invest in this.
AVG Technologies had $128M IPO with over $200M in revenue at that time and being profitable for years prior. Also had 20 years of history and was one of the few leaders on the market with over 100M active customers/users and growing.
What company does, how it operates, or how profitable it is doesn't matter. For highly valued (read overvalued) IPO you need to be on the spot. Think Twitter, Zynga, Groupon. They were all at loss IIRC. People buy these sort of stock for short periods of time so they go big and then burst few months or years later.
"Based on shares of our capital stock outstanding as of January 31, 2014, upon the completion of this offering, a total of shares of Class A common stock and"
The IPO is seeking to raise $250M. The S1 doesn't actually say how many shares they are planning to offer, so you can't say what the valuation would be. I'm guessing somewhere between 5-10 times the $250M.
So, $250M actually falls short of the $292M they are burning through every year. The net loss of $168M a year means the $250M buys them almost 18 months of runway.
Their growth looks less impressive when you consider they spent $292M to only grow revenue $65M.
In short, they are spending $5 to make $1. It's possible the customer LTV is actually $6 over a period of years, but they might not be able to borrow enough to make it back in time.
Am I the only one that thinks that a company turning a profit is not like flipping a light switch? If you have a culture of overspending, you aren't going to wake up money and start running a tight ship.
Could this reflect pressure from investors for a payday? If they feel this is a moment the market believes the business still has "opportunity" even if they don't expect to see it, so they want the liquidity event.
Completely agree about the unflippable profitability switch. Profitability is a direction, not a destination.
Of course. The signal here is that investors want to cash out. Even if investors aren't selling shares as part of the offering (haven't read the details yet, so not sure one way or another) and Box is simply issuing new shares and locking up investors for some period of time, this is a path to liquidity for investors.
Generally, selling shares is a signal that insiders view the company as overvalued.. otherwise they would hold. If they needed cash, they would issue debt instruments.
The market is hot on tech, so get out while the getting is good.
My understanding of Box is that they focus on enterprise customers more heavily than their competitors. Given upgrade cycles in many large companies, a LTV > $5 is possible.
The difficulty and expense of selling a new product to large companies might also explain the marketing budget.
sounds like very tough situation, worst of both worlds - enterprise sales of a product where competition is on price. Such business have no chances i think until it has a "self-service", read dirt cheap, sales process.
It doesn't matter. The street will eat it up. Wall Street is begging tech to produce - even if that means no profit. They will line up to invest. Also, (and probably) because Box is a potential buy-out. Which is probably why they are doing an IPO in the first place.
Look.. look at Amazon. That company has never posted a profit. And yet every trader I know is falling over themselves throwing money at them. It's the belief in investing in something"sexy", and "new".
That's also because they mark as much of it as possible as "expense", so that they have to pay as little as possible to those who were promised a percentage of profit.
Amazon had a crazy long term focus: http://www.fool.com/investing/general/2013/11/04/why-amazon-... . Their lack of a profit seems to be intentional, in that Jeff Bezos is willing to sacrifice short-term profit for a long-term vision. So the traders are actually making a rational choice here.
Plus it's a really weird comparison. One of the oldest, and by far the most successful online marketplaces with long term vision vs. a cloud storage startup who is competing against some major players (Google, Dropbox) and is burning through money. I'm unsure of Box too, I just don't see how Amazon is a reasonable comparison.
I didn't mean to compare Amazon to Box. I mentioned Amazon to point out another tech company that is a darling of Wall Street - despite unprofitability (generally).
"Look.. look at Amazon. That company has never posted a profit. And yet every trader I know is falling over themselves throwing money at them. It's the belief in investing in something"sexy", and "new"."
This is a) a lazy narrative that simplifies the realities of Amazon's business models and b) flat out false.
The last 4 years Amazon has posted EBITDA of $1.497B, $934M, $544M and $506M (2010-2013, respectively). (1)
Over that same time period they've had Net Income of $1.152B, $631M, ($39M), and $274M
So yeah, I'd say unequivocally that $3.481B in EBITDA and $2.018B in Net Income over a four year time span is absolutely "posting a profit."
Actually I do stand corrected.. cause Amazon DID post a profit, after several quarters of almost no profit or straight-up losses (for the holiday season).
Also this crap about revenue before taxes, interests - etc (your EBITDA) is just that, crap. It's unreliable because a company can decide what is (and what is not) included in the calculation. Of course, this means that a company can change (and many do) this "measure" from reporting period to reporting period. Remember the Dot-Com bust? Companies that had no value, or any chance of value, looked great on paper due to the EBITDA.
EBITDA does not represent a company's cash. More like it's cash flow that it has to service debt (and as I already said, that calculation can be manipulated by the company). It was designed for this purpose in the 80's - the leverage buy-out decade.
// END of rant
EBITDA doesn't measure profit. Or the ability to earn profit. And frankly, it's a cop-out to state to prove a company's value.
I'm somewhat astounded to hear they have 972 employees. I would have guesstimated somewhere below 200. Even with a huge marketing push, I'm a little at a loss for what they all do.
They have a much higher-touch enterprise sales process, so my guess is that most of the extra employees vs. DropBox are sales, customer service, relationship management, etc. Even after the sell, big clients tend to want dedicated account managers, dedicated support staff they know by name, etc. (Still, it does seem like a lot.)
Are you fully aware of what they offer? They have all kinds of well-known and arcane certifications, integrations with a few dozen products that are only relevant to large enterprises, a pretty big third-party ecosystem and the API to support them, and the large team required to sell and support these tools.
It's not just file storage for five bucks a month.
I'm curious, is that really as big of a deal as the tech startup makes it out to be? When the team is young, small, and scrappy, I understand that technical skills on the founding team are highly valued, but after growing to nearly 1,000 employees surely the core leadership can hand off the technical day-to-day and platform architecture to a technical SVP.
Technical executives have an innate concept of what is and what isn't possible. This allows them to better evaluate proposals for new features, refactoring systems, etc. This is one reason why I believe Microsoft succeeded under Bill Gates. Due to its size, Microsoft still made a lot of money under Steve Ballmer, who is non-technical, but it definitely lost its place as a technology leader. We will see if the new CEO, who is technical, will change that.
"In 1973, he attended college prep and engineering classes at Lawrence Technological University and graduated from Detroit Country Day School, a private college preparatory school in Beverly Hills, Michigan, with a perfect score of 800 on the mathematical section of the SAT... In 1977, he graduated magna cum laude from Harvard University with an A.B. in applied mathematics and economics... He scored highly in the prestigious William Lowell Putnam Mathematical Competition, an exam sponsored by the Mathematical Association of America, scoring higher than Bill Gates."
I'm not sure if he coded, but Ballmer definitely has a mathematical/technical background. I'm not sure technical background is necessarily an indicator of success as an executive.
I really meant engineer when I said technical. Engineers are both technical and are required to think in practical rather than abstract terms. Is that an indicator of success for an executive in general? It depends on the job and the company. But if you are the CEO of a company that produces technology, they yes I think it matters. Executives need other skills too.
Well, it kind-of explains why they have the losses they have.
In business, usually it's possible to achieve whatever revenue you want; the hard part is getting there without a headcount/other expense basis that makes you bleed money instead of earning it.
Is their product actually competitive? I had tried it once long ago, but currently I don't see any particular niche where it'd be superior to dropbox/google drive/onedrive/whatever.
applications / companies that have security requirements, e.g. healthcare needs BAAs to be signed and Box will do that whereas the rest (of the big players) generally do not
The question is also how does it compare to an on site system. Most large enterprises have invested lots of money in storage systems that are a technically trivial but essential to the business.
Sharing files outside of a company is useful and often problematic. But ironically a lot of large enterprises will block sites like box. Having an ftp style system on your own network is faster to upload and less likely to be blocked by the receiving party.
Actually a lot of this is surprising for me...I have a buddy that works there right now and while I knew there were bleeding some cash from articles I had read, I was under the impression that they actually were doing better than that financially.
The close to 1000 employees is also fairly surprising, but I would agree that it would mostly be on the sales side.
This is why I'm concerned. With Google pushing the price of online storage down and Box filing for its IPO we might end up with a damaged reputation of online storage companies and result in probably tanking Box's future revenues. The biggest loser will be us consumers since we'll end up with less choices if companies go bust.
I think the only losers will be cloud storage companies if the industry is commoditized and margins are pushed towards zero. The industry is only going to grow, and there will always be competition. Meanwhile, cheaper cloud storage is better for almost everyone.
But I don't think full commoditization will ever fully happen - there's a lot of value in trust and dependability in online storage, and these attributes are difficult to quantify. I'm much more likely to go with dropbox or google than some startup, even if the startup is offering much cheaper rates. Also, companies can compete on efficiency and scale, which adds barriers to entry.
I just read Ben Horowitz's new book, and he describes taking Loudcloud public as a Hail Mary because private markets were essentially too smart to give them any more money at a horrible time (while the original dotcom bubble was in the middle of bursting).
Clearly Box is in much better shape, but it's not too hard to imagine that maybe they are rolling the dice on an IPO during a super-hot market in response to feedback from private investors that they were going to have to raise a down (or otherwise disappointing) round.
gotta say it, one of the reasons Dropbox is king is good support for all platforms. Box still ignores Linux so it's a no go for me personally, and my work.
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[ 3.7 ms ] story [ 153 ms ] threadDoes anyone have any data around this?
Nowhere near Twitter's $1.8 billion, of course, but sub-$100m IPOs also happen, e.g. Aerohive filed for an expected $75m offering last month: http://techcrunch.com/2014/02/13/aerohive-networks-files-for...
What company does, how it operates, or how profitable it is doesn't matter. For highly valued (read overvalued) IPO you need to be on the spot. Think Twitter, Zynga, Groupon. They were all at loss IIRC. People buy these sort of stock for short periods of time so they go big and then burst few months or years later.
"Based on shares of our capital stock outstanding as of January 31, 2014, upon the completion of this offering, a total of shares of Class A common stock and"
Can't figure out the valuation.
Their growth looks less impressive when you consider they spent $292M to only grow revenue $65M.
In short, they are spending $5 to make $1. It's possible the customer LTV is actually $6 over a period of years, but they might not be able to borrow enough to make it back in time.
Am I the only one that thinks that a company turning a profit is not like flipping a light switch? If you have a culture of overspending, you aren't going to wake up money and start running a tight ship.
Completely agree about the unflippable profitability switch. Profitability is a direction, not a destination.
Generally, selling shares is a signal that insiders view the company as overvalued.. otherwise they would hold. If they needed cash, they would issue debt instruments.
The market is hot on tech, so get out while the getting is good.
The difficulty and expense of selling a new product to large companies might also explain the marketing budget.
Or, could Box raise prices significantly enough on some customers to lessen their losses without sending too many customers to competitors?
Look.. look at Amazon. That company has never posted a profit. And yet every trader I know is falling over themselves throwing money at them. It's the belief in investing in something"sexy", and "new".
This is a) a lazy narrative that simplifies the realities of Amazon's business models and b) flat out false.
The last 4 years Amazon has posted EBITDA of $1.497B, $934M, $544M and $506M (2010-2013, respectively). (1)
Over that same time period they've had Net Income of $1.152B, $631M, ($39M), and $274M
So yeah, I'd say unequivocally that $3.481B in EBITDA and $2.018B in Net Income over a four year time span is absolutely "posting a profit."
1) https://www.google.com/finance?q=NASDAQ%3AAMZN&fstype=ii&ei=...
Also this crap about revenue before taxes, interests - etc (your EBITDA) is just that, crap. It's unreliable because a company can decide what is (and what is not) included in the calculation. Of course, this means that a company can change (and many do) this "measure" from reporting period to reporting period. Remember the Dot-Com bust? Companies that had no value, or any chance of value, looked great on paper due to the EBITDA.
EBITDA does not represent a company's cash. More like it's cash flow that it has to service debt (and as I already said, that calculation can be manipulated by the company). It was designed for this purpose in the 80's - the leverage buy-out decade.
// END of rant
EBITDA doesn't measure profit. Or the ability to earn profit. And frankly, it's a cop-out to state to prove a company's value.
Edit: You were before me, so added my comment as a reply to you instead.
(Source: dropbox.com/about)
It's not just file storage for five bucks a month.
"In 1973, he attended college prep and engineering classes at Lawrence Technological University and graduated from Detroit Country Day School, a private college preparatory school in Beverly Hills, Michigan, with a perfect score of 800 on the mathematical section of the SAT... In 1977, he graduated magna cum laude from Harvard University with an A.B. in applied mathematics and economics... He scored highly in the prestigious William Lowell Putnam Mathematical Competition, an exam sponsored by the Mathematical Association of America, scoring higher than Bill Gates."
I'm not sure if he coded, but Ballmer definitely has a mathematical/technical background. I'm not sure technical background is necessarily an indicator of success as an executive.
In business, usually it's possible to achieve whatever revenue you want; the hard part is getting there without a headcount/other expense basis that makes you bleed money instead of earning it.
What am I missing here?
It's a HIPPA requirement.
*According to their governance, risk and compliance policies. Dropbox basically fails all of these checks for large companies.
Sharing files outside of a company is useful and often problematic. But ironically a lot of large enterprises will block sites like box. Having an ftp style system on your own network is faster to upload and less likely to be blocked by the receiving party.
The close to 1000 employees is also fairly surprising, but I would agree that it would mostly be on the sales side.
But I don't think full commoditization will ever fully happen - there's a lot of value in trust and dependability in online storage, and these attributes are difficult to quantify. I'm much more likely to go with dropbox or google than some startup, even if the startup is offering much cheaper rates. Also, companies can compete on efficiency and scale, which adds barriers to entry.
Clearly Box is in much better shape, but it's not too hard to imagine that maybe they are rolling the dice on an IPO during a super-hot market in response to feedback from private investors that they were going to have to raise a down (or otherwise disappointing) round.