Box reveals losses as it seeks $250m in IPO; The fact that Box is going public while saying it does not expect to be profitable “for the foreseeable future” will test investors’ willingness to gamble on the next generation of tech co

March 24, 2014 10:34 pm

Box reveals losses as it seeks $250m in IPO

By Tim Bradshaw and Hannah Kuchler in San Francisco and Arash Massoudi in New York

Box, the enterprise cloud storage company, said it hopes to raise $250m in an initial public offering as it revealed revenues that doubled last year but were outpaced by its losses.

The Silicon Valley-based company, which raised $100m last December at a reported valuation of about $2bn, saw sales leap from $58.8m in the year ending January 2013 to $124.2m last year, according to its IPO prospectus published on Monday.

However, net losses rose from $112m to $168m during the same period, largely due to substantial investments in sales and marketing of its online storage products.

The fact that Box is going public while saying it does not expect to be profitable “for the foreseeable future” will test investors’ willingness to gamble on the next generation of software and internet companies, which are attempting to displace traditional service providers.

Box is planning to launch an investor roadshow and expects to price its offering in April, one person familiar with its plans said. A dual class share structure will give existing investors ten times the voting rights of new shareholders.

Founded in 2005, Box’s free content management and collaboration technology is used by more than 225,000 organisations, including Gap and Schneider Electric, of which over 34,000 pay for extra storage and additional features.

The company’s pitch to prospective investors rests on the growth in cloud-based technology and data storage, as companies rely less on software installed on employees’ PCs and look to access corporate information from a variety of mobile devices.

Box’s filing says that potential customers include “anyone who uses information to get his or her job done”, a market it says is in excess of 1bn people.

In an attempt to boost revenues before an IPO, Box has been spending heavily on winning new customers: its sales and marketing costs soared to $171m last year. Box said it had never turned a profit and it planned to continue to invest in growth. It currently employs 972 staff.

Its competitors include start-ups such as Dropbox, another cloud-storage provider that began in the consumer market but is stepping up sales to enterprise customers, and British rival Huddle, as well as larger and more established IT companies including Microsoft, EMC, IBM and Google.

“Ultimately, we are moving toward an information economy, where every worker will be an information worker, and every business, regardless of industry, will be in the information business,” said Aaron Levie, Box’s 29-year-old chief executive, in a letter to shareholders. “To thrive, companies must arm themselves with a new understanding of the opportunities of information technology to drive their success.”

He signed off the letter: “Go Cloud!”

Like Twitter last year and GoPro, the action camera maker, last month, Box is the latest company to take advantage of the Jumpstart Our Business Startups Act, which allows companies with revenues below $1bn to submit filings to the Securities and Exchanges Commission in secret.

Its filing is published the same week that King, maker of mobile games such as Candy Crush Saga, plans to list on the New York Stock Exchange.

Box is also following in the footsteps of other recent internet companies including Twitter by shunning Nasdaq to float on NYSE. Morgan Stanley, Credit Suisse and JPMorgan are acting as lead advisers on the IPO and also provided a credit facility to Box in 2013.

Box was founded in Seattle by two college students in 2004 before moving to California in 2006. It has raised more than $400m in venture capital since Mark Cuban, the entrepreneur owner of the Dallas Mavericks basketball team, gave the company its first angel investment in 2005.

On Monday night, Mr Cuban tweeted: “I wish @BoxHQ the best, but I would combust if 8 years in I was responsible for $169mm in losses against less revs. I hope IPO gets them going.”

Draper Fisher Jurvetson owns over a quarter of the company, with US Venture Partners following behind with a 13 per cent stake.

Entities affiliated with General Atlantic own 8.4 per cent with Scale Venture Partners owning 7.4 per cent.

Mr Levie, Box’s co-founder, owns a 4.1 per cent stake, a relatively small stake for a tech company founder. Dylan Smith, his co-founder and chief financial officer, owns 1.8 per cent. In total, the board, which includes representatives of the largest VC shareholders, owns 53.2 per cent.

“It’s hard to get people to pay you and therefore to build a really big business in something that has rapidly declining cost characteristics,” said Rett Wallace, chief executive of Triton Research: “We’ve seen this movie before on storage in the physical world. Storage gets more plentiful and less expensive all the time.”

He added that Box broke even before its spending on acquiring new customers, illustrating its challenge in building a profitable business.