Today is the first day Wall Street analysts can issue recommendations on Box, the cloud storage company that went public in January.
And for the most part, analyst sentiment toward the stock is a bit lukewarm.
Of eight analyst reports reviewed by Business Insider, the majority had neutral or equivalent ratings for the stock. Of the three that were bold enough to issue higher price targets (Canaccord Genuity, Credit Suisse and JP Morgan), two (Credit Suisse and JP Morgan) served as underwriters for the company’s IPO.
The stock gained more than 70% on its first day of trading. Since then, though, shares of the cloud storage company have slumped, tumbling from a high of $US24.73 to below the $US20-a-share mark today.
In brief: Box’s big challenge is that investors want revenue and profit growth for a product that is getting cheaper and cheaper.
Analysts aren’t exactly bullish on Box
For some, the biggest factor is whether Box can continue its pace of customer acquisition as privately-held competitors like Dropbox and GitHub chip away at its various products with initiatives of their own. Still, others, like Google, Microsoft and Amazon also aim to displace Box’s storage and sharing business — but there is virtually no clarity on which enterprise solution provider will best take hold with corporate clients.
The market appears to have taken note, and shares fell for about than five per cent at the open this morning before rebounding.
Wells Fargo sums it up best: “While Box has enjoyed a healthy lead, many of the incumbent players are now embracing the mobile- and cloud-first mindset.”
Because Box is tailoring cloud platforms to serve individual industries, ranging from healthcare to entertainment to financial services, it may be able to continue growing market share among top Fortune 500 companies, something it has already done successfully — the JP Morgan report notes that 48% of the Fortune 500 are already customers.
A great deal of analysts’ hesitation seems to be hung up on similar factors. Box’s bailiwick, digital storage, has very little in terms of barriers to entry.
Historically, whether it is cloud storage or the bulky servers of yester-year, digitally warehousing data does not tend to get more expensive for users, it should be getting cheaper. And, Box’s sales and marketing spend is too high, next to comps like NetSuite and Workday (analysts say this will likely even out, over time).
The mysteries of Dropbox
But Box’s biggest comp is its top competitor, still lurking in the shadows and potentially lining up an IPO of its own: Dropbox.
While none of Dropbox’s financial data is public yet, some of its projections are, and it was expected to take in more revenue than Box for 2013, or, at least, that’s what one of Drew Houston’s big rounds promised as the company took in a mega-2011 round from investors including Goldman Sachs.
Aside from Dropbox potentially having become the 800-lb. gorilla in the data room, if Houston’s startup can show lower customer acquisition cost, better resilience to pricing pressure and more success with corporate clients, Aaron Levie’s first-mover advantage will only have applied to his IPO.
Disclosure: Jeff Bezos is an investor in Business Insider through his personal investment company Bezos Expeditions.