Box Inc BOX shares tanked more than 8% on Thursday morning — although the stock eventually pared those losses — after the company reported a second-quarter earnings beat on Wednesday. Box’s top- and bottom-line numbers were solid, but its operating margins and lack of large deals seemed to disappoint the market.
Box reported break-even EPS on $172.5 million in revenue, both topping consensus analyst expectations. However, Box’s in-line 2020 sales guidance wasn’t enough for shares to overcome operating margins growth of just 0.3% and a sharp drop in deals over $500,000.
Several analysts have weighed in on Box shares following the mixed quarter. Here’s a sampling of what they’ve had to say.
Underlying Numbers Mixed
Oppenheimer analyst Ittai Kidron said Box’s suites pricing and product positioning is positive, but pressured expansion and retention rates and mixed large deal numbers will likely limit upside.
“We expect this to keep the shares range-bound until better visibility into improved and sustainable sales execution emerges,” Kidron wrote in a note.
KeyBanc analyst Rob Owens said Box’s second-quarter numbers were better than expected, but the company has yet to find a cure for its decelerating growth.
“Despite the apparent strength, overall revenue growth was 16.4% and ST billings growth of 5.5% are relatively modest from a historical perspective,” Owens wrote.
D.A. Davidson analyst Rishi Jaluria said Box’s impressive headline numbers don’t hide some less-than-stellar underlying metrics.
“Shares traded down 8% AMC on declining net retention rates, below consensus deferred revenue, and guidance that bracketed consensus, in our view,” Jaluria wrote.
Downside Limited
Morgan Stanley analyst Melissa Franchi said Box’s second quarter was stable, but its fiscal 2020 guidance was a bit soft given the second-quarter beat.
“Trading at <3x CY20 sales, downside is likely limited, however, growth likely needs to inflect higher for BOX to see upside,” Franchi wrote.
Raymond James analyst Brian Peterson said Box’s second quarter is an indication the business is trending in the right direction, and the stock likely has limited downside from a valuation perspective.
“While the quarter benefited from favorable timing of revenue recognition, we’d argue that results look fairly strong relative to the past two quarters, where management provided a below consensus outlook for FY20,” Peterson wrote.
Ratings And Price Targets
- Morgan Stanley has an Equal-Weight rating and $17 target.
- KeyBanc has a Sector Weight rating and no target.
- Raymond James has an Outperform rating and $18 target.
- Oppenheimer has an Outperform rating and $18 target.
- D.A. Davidson has a Buy rating and $17 target.
After trading down 8%, Box's stock traded higher by 2% to $14.10 per share at time of publication.
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