Morgan Stanley Reviews Square, Box Earnings

Morgan Stanley feels that Square Inc

, the mobile payments firm run by Twitter Inc

CEO Jack Dorsey, has an attractive growth opportunity. But, the brokerage noted that the visibility on upside from software and data revenues is limited and long-term operating leverage and margin profile will take time to settle. Square delivered a solid beat out of the gate and 2016 outlook exceeded expectations, even though it could prove conservative. Analyst Vasundhara Govil said the company's strong numbers in software line provides the first bit of evidence about potential for faster ramp in non-payments revenues by cross-selling it in to its merchant base, which will be key to re-rating of the valuation multiple over the long-term. "We see 4Q as a positive step as Square stands to benefit from a significantly larger total addressable market and operating leverage on its customer acquisition costs by selling through Software and Data, but we still feel there is not enough visibility in the individual product lines and respective growth profiles to justify a premium multiple on our estimate, just yet," Govil wrote in a client note. Govil also noted that the stock could come under pressure in the near-term due to its large May 17, 2016 lockup overhang, as free float currently represents only 7-8 percent of diluted share count. While about 30 percent of unlocking shares are owned by cofounders Jack Dorsey and Jim McKelvey, the remaining about 60 percent could create selling pressure on SQ stock through 2016. Govil has an Equal-weight rating on SQ with a $12 price target. Meanwhile, Box Inc

, a cloud storage firm, impressed Street with billings growth of 59 percent in the fourth quarter that illustrates its strengthening enterprise positioning and leverage from its strategic partnerships. The company's fourth-quarter results topped Street expectations. "BOX is also making progress on leverage, but there is still a long way to go, likely keeping the margin profile a headwind for the stock. We remain Equal-weight," analyst Melissa Gorham said in a note to clients. Box guided FY17 revenue of $390 million -$394 million, relatively in line with consensus. This assumes 30 percent revenue growth, a modest deceleration from 36 percent growth in the fourth quarter. Box is transitioning to annual billings, removing multi-year billings to reduce the lumpiness in the model. "While this should help the variability we've seen in reported billings growth, it will be a drag to billings in FY17. With multi-year billings historically comprising mid to high single digit percentage of new billings mix, we estimate a 4-6% point headwind to billings growth in FY17," Gorham said. Gorham currently sees FY17 billings growth of 24 percent, down from 50 percent in FY16. Box also guided FY17 loss of 83 to 85 cents a share (consensus calls for loss of 88 cents). Gross margins will continue to be lower at about 73 percent, with Box investing in data center capacity. "While Box expects gross margins to improve post FY17, we take a more conservative stance after several Qs of disappointing gross margins," Gorham said. Shares of Square were down 5.65 percent at $11.35. Box shares rose about 3 percent at $12.87, more than Gorham's price target of $12.