Box Lives to Fight Another Day

CEO Aaron Levie at Box’s 2019 BoxWorks conference in San Francisco.

Photo: Michael Short/Bloomberg News
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Dan Gallagher
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Dan Gallagher

Oct. 7, 2021 7:03 am ET

Having effectively won more time on the clock, Box needs to make every minute count.

It has been a month since Box, which provides cloud-based collaboration software to businesses, defeated a proxy challenge brought by activist Starboard Value. It wasn’t particularly close: Box co-founder and Chief Executive Aaron Levie drew three times the number of “For” votes as the highest-ranking Starboard nominee. But it wasn’t a slam dunk either. In a report ahead of the Sept. 9 shareholder meeting, influential proxy-advisory firm ISS ISS -1.07% credited Starboard’s involvement for sparking necessary changes at the company. The firm’s recommendation against Starboard’s slate was based on the reasoning that Box’s current board “appears to deserve some additional time to implement the turnaround.”

Box shares slipped 11% over the next two weeks before picking back up. The stock got a further lift Wednesday as the company kicked off its annual BoxWorks conference with the announcement of several new offerings, including a revised mobile app and a new e-signature service, along with deeper integrations into larger workplace-collaboration platforms run by Microsoft, MSFT 1.51% Zoom Video and Salesforce CRM 1.29% -owned Slack. Box shares rose nearly 2% Wednesday to close at their highest level since the Sept. 9 meeting. The stock is also up 40% for the year to date, vastly exceeding the 7% gain for the BVP Nasdaq Emerging Cloud Index.

But that still leaves Box with an enterprise value around five times forward sales—one of the lowest valuations in a peer group that has at least a dozen stocks trading at more than 30 times. Box’s low multiple was a sore point for Starboard, which initiated its proxy challenge even after reaching a settlement with Box management last year. It also could keep the company vulnerable to other activist investors. Dropbox DBX 0.68% —another cloud company with a mid-single-digit multiple—drew the attention of Elliott Management this summer.

So Mr. Levie and other Box leaders still have their work cut out for them. The wind is at their back. Morgan Stanley MS -0.10% reported Wednesday that its latest survey of chief information officers showed corporate information-technology spending rising 4.4% this year, up from the 3.8% predicted just three months ago. Spending on cloud computing and so-called digital-transformation projects are the priorities—a plus for the collaboration tools Box is selling to businesses managing a new mix of remote and on-site workers.

Erik Suppiger of JMP Securities upgraded Box to a “buy” rating last month, saying that “sales execution has improved significantly,” and he predicted that new pricing strategies at the company will boost average deal sizes. Revenue growth for Box has picked up over the past two quarters. The company will need to maintain that trend if it wants to improve its multiple and keep activists at bay, though. The clock is still ticking.

Write to Dan Gallagher at [email protected]

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