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Box shares rise on report company is exploring sale
Shares of Box, a well-known content-and-collaboration company that went public in 2015, rose today after Reuters reported that the company is exploring a sale. TechCrunch previously discussed rising investor pressure for Box to ignite its share price after years in the public-market wilderness.
At the close today Box’s equity was worth $23.65 per share, up around 5% from its opening value, but lower than its intraday peak of $26.47, reached after the news broke. The company went public a little over five years ago at $14 per share, only to see its share price rise to around the same level it returned today during its first day’s trading.
Box, famous during its startup phase thanks in part to its ubiquitous CEO and co-founder Aaron Levie, has continued to grow while public, albeit at a declining pace. Dropbox, a long-term rival, has also seen its growth rate decline since going public. Both have stressed rising profitability over revenue expansion in recent quarters.
But the problem that Box has encountered while public, namely hyper-scale platform companies with competing offerings, could also prove a lifeline; Google and Microsoft could be a future home for Levie’s company, after years of the duo challenging Box for deals.
As recently as last week, Box announced a deal for tighter integration with Microsoft Office 365. Given the timing of the release, it was easy to speculate the news could be landing ahead of a potential deal. The Reuters article adds fuel to the possibility.
While we can’t know for sure if the Reuters article is accurate, the possible sale of Box makes sense.
The article indicated that one of the possible acquisition options for Box could be taking it private again via private equity. Perhaps a firm like Vista or Thoma Bravo, two firms that tend to like mature SaaS companies with decent revenue and some issues, could swoop in to buy the struggling SaaS company. By taking companies off the market, reducing investor pressure and giving them room to maneuver, software companies can at times find new vigor.
Consider the case of Marketo, a company that Vista purchased in 2016 for $1.6 billion before turning it around and selling to Adobe in 2018 for $4.75 billion. The end result generated a strong profit for Vista, and a final landing for Marketo as part of a company with a broader platform of marketing tools.
If there are expenses at Box that could be trimmed, or a sales process that could be improved, is not clear. But Box’s market value of $3.78 billion could put it within grasp of larger private-equity funds. Or well within the reaches of a host of larger enterprise software companies that might covet its list of business customers, technology or both.
If the rumors are true, it could be a startling fall from grace for the company, moving from Silicon Valley startup darling to IPO to sold entity in just six years. While it’s important to note these are just rumors, the writing could be on the wall for the company, and it could just be a matter of when and not if.
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As activist investors loom, what’s next for Box?
Box could be facing troubled times if a Reuters story from last week is accurate. Activist investor Starboard Value took a 7.9% stake in the storage company in September 2019, and a year ago took three board seats as its involvement in the cloud company deepened. It seemed only a matter of time before another shoe dropped.
Activist investor Starboard Value is reportedly after three additional board seats.
That thunk you just heard could be said shoe as Starboard is reportedly after three additional board seats. Those include current CEO Aaron Levie’s and two independent board members, all of whom have their seats coming up for election in June. If the firm were to obtain three additional seats, it would control six of nine votes and could have its way with Box.
What could the future hold for the company given this development (assuming it’s true)? It seems changes are coming for Box.
Below, we’ll explore how Box got to this point. And if an acquisition is in Box’s future, just who might be in the market for a cloud-native content management company built to scale in the enterprise? There would very likely be multiple suitors.
Box’s fickle financial fate
Starboard may have reason to be frustrated by Box’s performance. The cloud company’s stock price and market cap remain stubbornly low. Its share price is mired around $18 a share, not much higher than the price it went public at in 2015 when it was valued at $14 per share. Its market cap today is $3 billion, which is lacking in comparison to fellow cloud stalwarts like Dropbox at $9 billion, Slack at $23 billion or Okta at $34 billion.
Remember back in March 2014 when Box announced it was going public? It then did something highly unusual, delaying the deed 10 months until January 2015. One thing or another kept the company from pulling the trigger and just doing it. Perhaps it was a sign.
Instead, Box raised $150 million more after its S-1 filing received a lackluster response from the market. Looking back, you could argue that the SaaS model was simply less well known in 2014 than it is today. Certainly public investors are more sympathetic to software companies that run deficits in the name of growth than they were back then.
But when Box did file again, finally pricing at $14 per share in 2015, it received a strong welcome. The company had priced above its $11 to $13 per-share IPO range as TechCrunch reported at the time and instantly shot higher. We wrote on its IPO day that the cloud company quickly “surged to over $20 a share and [was then] trading at $23.67.”
A year later, our continuing coverage had flipped with the share price stuck at $10 in January 2016.
When growth won’t come
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Box acquires e-signature startup SignRequest for new content workflows
Box announced this morning that it has agreed to acquire e-signature startup SignRequest for $55 million. The acquisition gives the company a native signature component it has been lacking and opens up new workflows for the company.
Box CEO Aaron Levie says the company has seen increased demand from customers to digitize more of their workflows, and this acquisition is about giving them a signature component right inside Box that will be known as Box Sign moving forward. “With Box Sign, customers can have a seamless e-signature experience right where their content already lives,” Levie told me.
While Box has partnerships with other e-signature vendors, this gives it one to call its own, one that will be built into Box starting this summer. As we have learned during this pandemic, the more work we can do remotely, the safer it is. Even after the pandemic ends and we get back to more face-to-face interactions, being able to do things fully in the cloud and removing paper from the workflow will speed up everything.
“The massive push to remote work effectively instantly highlighted for every enterprise where their digital workflows were breaking down. And e-signature was a major part of that — too many industries still rely on paper-based processes,” he said.
Levie says that the signature component has been a key missing piece from the platform. “As for our platform, when you look at Snowflake, they’re the data cloud. Salesforce is the sales cloud. Adobe is the marketing cloud. We want to build the content cloud. Imagine one platform that can power the entire lifecycle of content. E-signature has been a major missing link for critical workflows,” he said.
He believes this will open up the platform for a number of scenarios, that while possible before, could not flow as easily between Box components. “Having SignRequest gets us more natively into mission-critical workflows like customer contracts, vendor onboarding, healthcare onboarding and supply chain collaboration,” Levie explained.
It’s worth noting that Dropbox acquired HelloSign for $230 million two years ago to provide it with a similar kind of functionality and workflow capability, but analyst Alan Pelz-Sharpe from Deep Analysis, a firm that follows the content management market, says this wasn’t really in reaction to that.
“I think what is interesting here is that Box is going to integrate SignRequest and bundle it as part of the standard service. That’s what really caught my eye as the challenge with e-sig is that it’s typically a separate product and so gets limited use. They bought it partly in response to Dropbox, but it was a hole that needed fixing regardless so would have done so anyway,” Pelz-Sharpe explained.
As for SignRequest, the company was founded in the Netherlands in 2014. Neither PitchBook nor Crunchbase has a record of it raising funds. The plan is for the company’s employees to join Box and help build the signature component that will become Box Sign. According to a message to customers on the company website, existing customers will have the opportunity over the next year to move to Box Sign, and get all of the other components of the Box platform.
Levie says the basic Box Sign function will be built into the platform at no additional charge, but there will be more advanced features coming that they could charge for. The deal is expected to close soon with the SignRequest team remaining in The Netherlands.
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Customer experience and digital transformation concepts are merging during the pandemic
Customer experience and digital transformation are two terms we’ve been hearing about for years, but have often remained nebulous in many organizations — something to aspire to perhaps, but not take completely seriously. Yet the pandemic has been a forcing event for both concepts, thrusting the ideas front and center.
Suddenly startups that help with either of these concepts are seeing rising demand, even in a year with an overall difficult economic climate. If you are fortunate enough to be helping companies digitize a process or improve how customers interact with companies, you may be seeing increased interest from customers and potential acquirers (and this was true even before this year). A case in point is Twilio acquiring Segment for $3.2 billion recently to help build data-fueled applications to interact with customers.
Even though building a positive customer experience has never been completely about digital, at a time where it’s difficult to interact with customers in person, the digital side of it has taken new urgency. As COVID-19 took hold this year, businesses, large and small, suddenly realized the only way to connect to their customers was digitally. At that point, digital transformation became customer experience’s buddy when other ways of contacting one another have been severely limited.
Pandemic brings changes
Just about every startup founder I talk to these days, along with bigger, more established companies, talk about how the pandemic has pushed companies to digitally transform much faster than they would have without COVID.
Brent Leary, founder at CRM Essentials, says that the pandemic has certainly expedited the need to bring these two big ideas together and created opportunities as that happens. “The coronavirus, as terrible as it has been in so many ways to so many people, has created opportunities for companies to build direct-to-consumer (D2C) digital pipelines that can make them stronger companies despite the current hardships,” Leary told TechCrunch.
The cloud plays a big role in the digital transformation process, and for the last decade, we have seen companies make a slow but steady shift to the cloud. When you have a situation like we’ve had with the coronavirus, it speeds everything up. As it turns out, being in the cloud helps you move faster because you don’t have to worry about all of the overhead of running a business critical application as the SaaS vendors take care of all that for you.
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Box benefits from digital transformation as it raises its growth forecast
Box has always been a bit of an enigma for Wall Street, and perhaps for enterprise software in general. Unlike vendors who shifted to the cloud tools like HR, CRM or ERP, Box has been building a way to manage content in the cloud. It’s been a little harder to understand than these other enterprise software stalwarts, but slowly but surely Box has shifted into a more efficient, and dare we say, profitable public company.
Yesterday the company filed its Q2 2021 earnings report and it was solid. In fact, the company reported revenue of $192.3 million. That’s an increase of 11% year over year and it beat analyst’s expectations of $189.6 million, according to the company. Meanwhile the guidance looked good too, moving from a range of $760 to $768 million for the year to a range of $767 to $770 million.
All of this points to a company that is finding its footing. Let’s not forget, Starboard Value bought a 7.5% stake in the company a year ago, yet the activist investor has mostly stayed quiet and Box seems to be rewarding its patience as the pandemic acts as a forcing function to move customers to the cloud faster — and that seems to be working in Box’s favor.
Let’s get profitable
Box CEO Aaron Levie has not been shy about talking about how the pandemic has pushed companies to move to the cloud much more quickly than they probably would have. He said as a digital company, he was able to move his employees to work from home and remain efficient because of tools like Slack, Zoom, Okta and, yes, Box were in place to help them do that.
All of that helped keep the business going, and even thriving, through the extremely difficult times the pandemic has wrought. “We’re fortunate about how we’ve been able to execute in this environment. It helps that we’re 100% SaaS, and we’ve got a great digital engine to perform the business,” he said.
He added, “And at the same time, as we’ve talked about, we’ve been driving greater profitability. So the efficiency of the businesses has also improved dramatically, and the result was that overall we had a very strong quarter with better growth than expected and better profitability than expected. As a result, we were able to raise our targets on both revenue growth and profitability for the rest of the year,” Levie told TechCrunch.
Let’s get digital
Box is seeing existing customers and new customers alike moving more rapidly to the cloud, and that’s working in its favor. Levie believes that companies are in the process of reassessing their short and longer term digital strategy right now, and looking at what workloads they’ll be moving to the cloud, whether that’s cloud infrastructure, security in the cloud or content.
“Really customers are going to be trying to find a way to be able to shift their most important data and their most important content to the cloud, and that’s what we’re seeing play out within our customer base,” Levie said.
He added, “It’s not really a question anymore if you’re going to go to the cloud, it’s which cloud are you going to go to. And we’ve obviously been very focused on trying to build that leading platform for companies that want to be able to move their data to a cloud environment and be able to manage it securely, drive workflows on it, integrate it across our applications and that’s what we’re seeing,” he said.
That translated into a 60% increase quarter over quarter on the number of large deals over $100,000, and the company crossed 100,000 customers globally on the platform in the most recent quarter, so the approach seems to be working.
Let’s keep building
As with Salesforce a generation earlier, Box decided to build its product set on a platform of services. It enabled customers to tap into these base services like encryption, workflow and metadata and build their own customizations or even fully functional applications by taking advantage of the tools that Box has already built.
Much like Salesforce president and COO Bret Taylor told TechCrunch recently, that platform approach has been an integral part of its success, and Levie sees it similarly for Box. calling it fundamental to his company’s success, as well.
“We would not be here without that platform strategy,” he said. “Because we think about Box as a platform architecture, and we’ve built more and more capabilities into that platform, that’s what is giving us this strategic advantage right now,” he said.
And that hasn’t just worked to help customers using Box, it also helps Box itself to develop new capabilities more rapidly, something that has been absolutely essential during this pandemic when the company has had to react quickly to rapidly changing customer requirements.
Levie is 15 years into his tenure as CEO of Box, but he still sees a company and a market that is just getting started. “The opportunity is only bigger, and it’s more addressable by our product and platform today than it has been at any point in our history. So I think we’re still in the very early stages of digital transformation, and we’re in the earliest stages for how document and content management works in this modern era.”
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Box CEO Aaron Levie says thrifty founders have more control
Once upon a time, Box’s Aaron Levie was just a guy with an idea for a company: 15 years ago as a USC student, he conceived of a way to simply store and share files online.
It may be hard to recall, but back then, the world was awash with thumb drives and moving files manually, but Levie saw an opportunity to change that.
Today, his company helps enterprise customers collaborate and manage content in the cloud, but when Levie appeared on an episode of Extra Crunch Live at the end of May, my colleague Jon Shieber and I asked him if he had any advice for startups. While he was careful to point out that there is no “one size fits all” advice, he did make one thing clear:
“I would highly recommend to any company of any size that you have as much control of your destiny as possible. So put yourself in a position where you spend as little amount of dollars as you can from a burn standpoint and get as close to revenue being equal to your expenses as you can possibly get to,” he advised.
Don’t let current conditions scare you
Levie also advised founders not to be frightened off by current conditions, whether that’s the pandemic or the recession. Instead, he said if you have an idea, seize the moment and build it, regardless of the economy or the state of the world. If, like Levie, you are in it for the long haul, this too will pass, and if your idea is good enough, it will survive and even thrive as you move through your startup growth cycle.
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Emergence’s Jason Green still sees plenty of opportunities for enterprise SaaS startups
Jason Green, co-founder and partner at Emergence, has made some solid enterprise SaaS bets over the years, long before it was fashionable to do so. He invested early in companies like Box, ServiceMax, Yammer, SteelBrick and SuccessFactors.
Just those companies alone would be a pretty good track record, but his firm also invested in Salesforce, Zoom, Veeva and Bill.com. One consistent thread runs through Emergence’s portfolio: They focus on the cloud and enterprise, a thesis that has paid off big time. What’s more, every one of those previously mentioned companies had a great founding team and successful exit via either IPO or acquisition.
I spoke with Green in June about his investment performance with enterprise SaaS to get a sense of the secret of his long-term success. We also asked a few of those portfolio company CEOs about what it has been like to work with him over time.
All in on SaaS
Green and his co-founders saw something when it came to the emerging enterprise SaaS market in the early 2000s that a lot of firms missed. Salesforce co-founder and CEO Marc Benioff told a story in 2018 about his early attempts at getting funding for his company — and how every single Silicon Valley firm he talked to turned him down.
Green’s partner, Gordon Ritter, eventually invested in Salesforce as one of the company’s earliest investments because the partners saw something in the SaaS approach, even before the term entered the industry lexicon.
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New Box tools should help ease creation of digitally driven workflows
As COVID-19 has forced companies to move employees from office to home, cloud services have seen a burst in business. Box has been speeding up its product roadmap to help companies that are in the midst of this transition. Today, the company announced the Box Relay template library, which includes a series of workflow templates to help customers build digital workflows faster.
Box CEO Aaron Levie says that the rapid shift to work from home has been a massive accelerant to digital transformation, in some cases driving years of digital transformation into a matter of weeks and months. He says that has made the need to digitize business processes more urgent than ever.
In fact, when he appeared on Extra Crunch Live last month, he indicated that businesses still have way too many manual processes:
We think we’re [in] an environment that anything that can be digitized probably will be. Certainly as this pandemic has reinforced, we have way too many manual processes in businesses. We have way too slow ways of working together and collaborating. And we know that we’re going to move more and more of that to digital platforms.
Box Relay is the company’s workflow tool, and while it has had the ability to create workflows, it required a certain level of knowledge and way of thinking to make that happen. Levie says that they wanted to make it as simple as possible for customers to build workflows to digitize manual processes.
“We are announcing an all new set of Box Relay templates, which are going straight to the heart of how do you automate and digitize business processes across the entire enterprise and make it really simple to do that,” he explained.
This could include things like a contract review, change order process or budget review to name a few examples. The template includes the pieces to get going, but the customer can customize the process to meet the needs of the individual organization’s requirements.
Image Credits: Box
While this is confined to Box-built templates for now, Levie says that down the road this could include the ability for customers to deploy templates of their own, or even for third parties like systems integrators to build industry or client-specific templates. But for today, it’s just about the ones you get out of the box from Box.
At the same time, the company is announcing the File Request feature, a name Levie admits doesn’t really do the feature justice. The idea is that in a workflow such as a paperless bank loan process, the individual has to submit multiple documents without having a Box account. After the company receives the documents, it can kick off a workflow automatically based on receiving the set of documents.
He says the combination of these two new capabilities will give customers the ability to digitize more and more of their processes and bring in a level of automation that wasn’t previously possible in Relay. “The combination of these two features is about driving automation across the entire enterprise and digitizing many more paper-based and manual processes in the enterprise,” Levie said.
Box will not be charging additional fees for these new features to customers using Box Relay. File Request should be available at the end of this month, while the template library should be available by the end of July, according to the company.
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SaaS earnings rise as pandemic pushes companies more rapidly to the cloud
As the pandemic surged and companies moved from offices to working at home, they needed tools to ensure the continuity of their business operations. SaaS companies have always been focused on allowing work from anywhere there’s access to a computer and internet connection, and while the economy is reeling from COVID-19 fallout, modern software companies are thriving.
That’s because the pandemic has forced companies that might have been thinking about moving to the cloud to find tools what will get them there much faster. SaaS companies like Zoom, Box, Slack, Okta and Salesforce were there to help; cloud security companies like CrowdStrike also benefited.
While it’s too soon to say how the pandemic will affect work long term when it’s safe for all employees to return to the office, it seems that companies have learned that you can work from anywhere and still get work done, something that could change how we think about working in the future.
One thing is clear: SaaS companies that have reported recent earnings have done well, with Zoom being the most successful example. Revenue was up an eye-popping 169% year-over-year as the world shifted in a big way to online meetings, swelling its balance sheet.
There is a clear connection between the domestic economy’s rapid transition to the cloud and the earnings reports we are seeing — from infrastructure to software and services. The pandemic is forcing a big change to happen faster than we ever imagined.
Big numbers
Zoom and CrowdStrike are two companies expected to grow rapidly thanks to the recent acceleration of the digital transformation of work. Their earnings reports this week made those expectations concrete, with both firms beating expectations while posting impressive revenue growth and profitability results.
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Aaron Levie: ‘We have way too many manual processes in businesses’
Box CEO Aaron Levie has been working to change the software world for 15 years, but the pandemic has accelerated the move to cloud services much faster than anyone imagined. As he pointed out yesterday in an Extra Crunch Live interview, who would have thought three months ago that businesses like yoga and cooking classes would have moved online — but here we are.
Levie says we are just beginning to see the range of what’s possible because circumstances are forcing us to move to the cloud much faster than most businesses probably would have without the pandemic acting as a change agent.
“Overall, what we’re going to see is that anything that can become digital probably will be in a much more accelerated way than we’ve ever seen before,” Levie said.
Fellow TechCrunch reporter Jon Shieber and I spent an hour chatting with Levie about how digital transformation is accelerating in general, how Box is coping with that internally and externally, his advice for founders in an economic crisis and what life might be like when we return to our offices.
Our interview was broadcast on YouTube and we have included the embed below.
Just a note that Extra Crunch Live is our new virtual speaker series for Extra Crunch members. Folks can ask their own questions live during the chat, with past and future guests like Alexis Ohanian, Garry Tan, GGV’s Hans Tung and Jeff Richards, Eventbrite’s Julia Hartz and many, many more. You can check out the schedule here. If you’d like to submit a question during a live chat, please join Extra Crunch.
On digital transformation
The way that we think about digital transformation is that much of the world has a whole bunch of processes and ways of working — ways of communicating and ways of collaborating where if those business processes or that way we worked were able to be done in digital forms or in the cloud, you’d actually be more productive, more secure and you’d be able to serve your customers better. You’d be able to automate more business processes.
We think we’re [in] an environment that anything that can be digitized probably will be. Certainly as this pandemic has reinforced, we have way too many manual processes in businesses. We have way too slow ways of working together and collaborating. And we know that we’re going to move more and more of that to digital platforms.
In some cases, it’s simple, like moving to being able to do video conferences and being able to collaborate virtually. Some of it will become more advanced. How do I begin to automate things like client onboarding processes or doing research in a life sciences organization or delivering telemedicine digitally, but overall, what we’re going to see is that anything that can become digital probably will be in a much more accelerated way than we’ve ever seen before.
How the pandemic is driving change faster
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