Watch Out for Box Stock
Box Inc (NASDAQ:BOX) went public at the wrong time. Last year was simply terrible for every tech initial public offering (IPO)—just ask Jack Dorsey and Square Inc (NYSE: SQ). BOX stock suffered as a consequence, but there’s one metric that can turn its fortunes around.
Investors didn’t take too kindly to the fact that Box was still churning out losses. While that’s a reasonable complaint, it wasn’t always such a big issue. The market used to give growth-centric technology firms a lot of slack on the profitability side of things.
And plenty of investors got rich by giving those companies a chance to mature. There’s some evidence that we’re seeing a return to that kind of long-term investing, so the window of opportunity is rather small. Investors may want to act now before it’s gone.
BOX stock rose as much as 17% after its quarterly earnings came out, finally lifting the stock above its $14.00 IPO price. Investors finally came to their senses and appreciated the 36% year-over-year revenue growth. (Source: “Can Square and Box thaw the IPO market?” CNBC, March 10, 2016.)
They also really like that Box’s customer acquisition costs came down. Every dollar of revenue used to cost $0.88 in sales and marketing, but that number dropped to $0.74. It’s just one of the benefits of achieving scale.
But that isn’t the key number I’m talking about. The number that really has me bullish on Box is a stunning metric, a huge indicator that should have every BOX stock bear crying him or herself to sleep. This number leads directly to profits.
I’m talking about the company’s retention rate; that is how much business Box Inc managed to keep after people tried its service. So what do you think it was: 50%? 75%? Surely it can’t be 90%! Actually, Box had a jaw-dropping retention rate of 117%. (Source: “Q4 and FY16 Financial Results,” Box Inc Investor Relations, March 9, 2016.)
That’s right, Box’s service was so good that companies doubled down. After using Box for a year, corporate customers used it more. When I see something like that, everything else in the financial statements ceases to exist. It’s proof that customers love what they’re getting.
So we’re going to see this company keep expanding at a rapid pace. And as it has already proven, getting bigger means the company spends less on acquiring customers. It’s a dream-like scenario.
There’s no doubt in my mind that BOX stock is going to be a major winner in 2016.