5 Key Takeaways From The Box Q3 Report

Box Inc BOX reported earnings Thursday, with the results and guidance falling in line with expectations. 

The Analyst

Oppenheimer's Ittai Kidron maintained an Outperform on Box and increased the price target for the stock from $22 to $24.

The Key Takeaways

In-line quarter and outlook: Box reported revenue of $129.2 million versus a $128.7 million consensus estimate and an in-line loss per share of 13 cents. Billings of $141.5 million were better than expectations of $139 million, while guidance was in line, Kidron said. (See Kidron's track record here.) 

Positives: The company reported steady gross margin trends, year-over-year operating margin improvement and positive free cash flow of $6.3 million. Box reiterated positive fourth-quarter and fiscal 2018 free cash flow guidance, Kidron said. Partner and international contributions to large deals were solid, and contributions for deals with new or multiple products bought were increasing, the analyst said. 

Negatives: Large deal push-out and activity was down year-over-year and there was downward pressure on retention rate and net expansion, Kidron said. Facility expansion and build-out had a negative short-term impact on cash flow, and competitive overlap with partners like Microsoft and Google was also negative, the analyst said. 

Large deal setback: A few large deals were pushed out of Q3 due to deal complexity in regulated industries. The analyst expects the company's move into higher value areas to positively drive more large deals over time.

Bottom line: Kidron expects the stock to take a near-term hit due to lack of upside, but he sees the value proposition strengthening.

The Price Action

Box traded around 5 percent lower Thursday after the earnings report was issued. This is Box's third trading session in the negative territory.

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