Patience Being Tested Following Box's Q1 Earnings, Guidance

Box Inc BOX shares tumbled more than 11 percent on Tuesday morning after the company issued disappointing guidance along with its first-quarter earnings report.

Box’s EPS loss of 3 cents and its first-quarter revenue of $163 million exceeded Wall Street estimates. However, the company’s full-year revenue guidance of between $688 million and $692 million was well short of analyst expectations of $702 million.

Several analysts have weighed in on Box. Here’s a sampling of what they’ve had to say.

Inconsistent Execution

Morgan Stanley analyst Melissa Franchi said Box hasn’t quite found the groove with its new strategy just yet.

“BOX's strategic selling focus is requiring continued patience with Q1 billings growth of ~1% and another downtick in the FY20 guide,” Franchi wrote in a note. She said improvements in leverage and upsell metrics are positive, but investors need billing growth improvement before they are fully on board with the outlook.

Wells Fargo analyst Philip Winslow said Box’s new products and bundles are good enough for investors to overlook the guidance cut.

“We are frustrated by the consistent inconsistency in terms of Box’s go-to-market execution, but we maintain a positive view on Box’s positioning and product portfolio,” Winslow wrote. He said much of Box’s poor operational performance is fully reflected in the share price following a double-digit sell-off.

Investors Losing Patience

Canaccord Genuity analyst Richard Davis said he has run out of patience when it comes to Box’s poor execution.

“We count this one as a painful learning experience, and have decided to break our ‘never change a rating immediately after a print rule’ by downgrading, rather than defending this stock again,” Davis wrote. He said there’s no excuse for a company with as strong of a fundamental market positioning to be as inconsistent as Box has been.

D.A. Davidson analyst Rishi Jaluria said his patience is certainly being tested as well.

“If BOX can demonstrate a concrete plan to achieve the ‘Rule of 40’ over the next few years, shares could bounce back, similar to CSOD or SPSC; otherwise, an activist or PE may force its hand,” Jaluria wrote. He said growth plus free cash flow margins stands at just 19, well short of the 40 level.

Ratings And Price Targets

• Morgan Stanley has an Equal-Weight rating and $17 target.
• Wells Fargo has an Outperform rating and $22.50 target.
• Canaccord Genuity has a Hold rating and $16 target.
• D.A. Davidson has a Buy rating and $19 target.

Box's stock traded lower by 7.3 percent to $16.61 per share at time of publication.

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