Box CEO Aaron Levy speaks at Boxworks in 2018
In this weekly series, CNBC looks at the companies that made the list of inaugural disruptors 50 years later.
At age 37, Aaron Levy has been in the same job for almost half his life. He is the CEO of Collaborative Software Dealer Box, a business he started as a sophomore at the University of Southern California.
Far from the day of a new dorm room start-up, Box now employs more than 2,100 people and generates about $ 900 million in annual revenue. Levy, despite his relative youth, is a grizzled veteran of cloud software, an industry where salesforce and boxing were something else.
In the case of the Wall Street drama, Levi is also a seasoned veterinarian, and he has the mark to prove it.
In the decade leading up to Box CNBC’s first Disruptor 50 listing, the company had to deal with a delayed IPO to take ownership of its economy, an increased stock underperformance and a heated battle with active investor Starboard Value last year, which the company had to deal with. The demand is to find a buyer or remove his CEO.
Levy kept his job, and an independent box won his proxy fight with Starboard in the end. In the end, investors seem to like what they see.
The company has recently surpassed its all-time high stock price since 2018, and the box has become a safe haven during the nose of the technology market to start 2022. Box is the fourth best performer out of 76 companies in the Bessema Venture Partners Cloud Index and one of only seven members to date.
“It’s a strange claim to fame,” Levy said in a recent interview. “I’ve literally moved on to the other side of this thing, which has a healthy balance of growth and profit. It’s actually a really good thing.”
Box Outperformance this year
Box shares have risen more than 5% this year through Wednesday’s close, while Nasdaq has fallen more than 11% of that stretch. The stock rose on March 17 after Box issued a forecast on its analyst’s day, calling for an operating margin of 25% to 28% as well as a 15% to 17% revenue increase.
Analysts at JMP said in a report that the updated guidelines “reflect the company’s strong performance, leadership in a large market and the prospect of continued financial growth.”
Even with the recent momentum, 10 years ago when it was a burning Silicon Valley start-up, Levy thought he wouldn’t because of the hype surrounding his company. Its market cap is only 4 4 billion today, up from about $ 1.7 billion at the time of the 2015 IPO. Venture investors valued the company at $ 2 billion in 2013, the year Inc. magazine covered Levy as Entrepreneur of the Year.
Compare this with some of the top names joining the first Disruptor 50 list box. Airbnb is valued at $ 106 billion, Shopify is valued at $ 83 billion, Square (now Block) is valued at $ 75 billion and Atlassian is valued at $ 73 billion. Also on the list that year was Box’s rival Dropbox, which has struggled since its 2018 IPO and now has a market capitalization of less than $ 9 billion.
“Clearly, we believe we have been underestimated,” Levy said. To prove it, the company is buying shares and, on its analyst day, raised its repurchase plan to $ 150 million next year.
Box co-counters Aaron Levy (C) and Dylan Smith (2nd R) celebrate their company’s IPO on the floor of the New York Stock Exchange, January 23, 2015.
Brendon McDermide | Reuters
“That’s our message,” Levy said. “We think the shares are very attractive for our ownership” and “we have enough upside in front of us.”
Some of that potential uptick comes from revenue growth, which is eventually accelerating. Revenue grew 13% in the fiscal year ended January, up from 11% in the previous year. Prior to that, growth slowed for eight consecutive years as collaboration improvements and file storage tools were baked into the low-cost productivity suite from Google and Microsoft.
To grow 17% in three years, Box is relying on a strategic shift that involves delivering more things to its customers.
When Microsoft had a punching bag
In the early days of the box, the company played the role of upstart to take direct shots at Microsoft, which was then an easy target. The software giant has yet to go all out in the cloud and its SharePoint product was a clunky collaboration tool that did not work across an array of mobile devices that customers were receiving.
The Box app makes it easy for people to store and share documents in the cloud and access them from anywhere. It was funny when the venture capitalists were subsidizing growth. But competition was everywhere, leaving the box without any price power.
When Box’s IPO prospectus came out in March 2014, investors saw signs of a flawed business model. Operating costs have nearly doubled in recent quarters. So Box delayed its offer, raised $ 150 million in personal funding and hit the market 10 months later with its financial aspects pointing to a more sustainable direction.
Over the years, Box has invested heavily in moving from product to platform. Instead of selling collaboration software, it is now offering what it calls Content Cloud – a complete suite of services for saving and sharing documents, managing workflows, securing files and integrating third party tools. By early 2021, Box had spent $ 55 million on start-up SignRequest, adding e-signature technology across its cloud.
“What we talked about a decade ago was cooperation,” Levy said. Now, he says, the company is “building a complete suite against a capacity that is driving all growth.”
Of its more than 100,000 customers, Box says it is spending at least $ 1 million in 120 years. Within its client base, the company sees a “7x user expansion opportunity” as its products become more relevant to the workplace, according to Analyst’s Day presentations.
In the world of software as a service, or SaaS, investors have heard of a lot of companies selling “land and expand” models to a small group of developers or marketers and then using that footprint to become widely accepted within an organization.
Box has worked with it collaboratively, but it will go a long way in proving that its platform could be a key part of future enterprise stacks. Although the stock has outperformed late, it still trades at almost four times the forward revenue, placing it in fifth place below the BVP Cloud Index.
The good news for Levy is that activists are not far behind, and the matrix is improving where it matters most: free cash flow jumped 41% in 2022 to $ 170.2 million.
“I would urge all founders to be more focused on cash flow,” Levy said.
With two young children at home, Levy has little time left to train young entrepreneurs who are trying to navigate the current market. But he has learned some things that are going through the kind of war that many technology entrepreneurs have so far avoided.
And if he has any sage advice, it is:
“Silicon Valley has ebb and flow,” Levy said. Always look at the long-term economy and “how you are going to create cash flow in the future,” he added, “because that future may come faster than you think.”
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