Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Cloud Storage Wars Could Favor the Little Guys

Image by Flickr user Ian Lamont

The more competitive the cloud storage sector grows, the more interesting questions it raises. Will the younger, more nimble ventures have the upper hand against their larger competitors? Will innovative products stand against lower prices? Is there still room in the market for rising stars?

This year's new public offerings will be the proving ground. Cloud storage/service company Box announced plans to raise an expected $250 million in its IPO. Similar IPO news is expected from cloud data-transfer company Dropbox, while new data-storage company Actifio has announced a valuation of more than $1 billion after raising $100 million in a March funding round, with eyes on a potential IPO in 2015.

Meanwhile, the more established competitors are busy updating the services they already have. Google has dropped prices for extra Google Drive storage. Microsoft is touting the interconnected abilities of its latest Office 365 features, and Citrix Systems (NASDAQ: CTXS  ) is developing new apps for Chromebook. These more defensive moves raise a question: Can the little guys pose a real threat to the bigger cloud storage leaders?

VMware and Citrix
According to Box's IPO filing, the company saw revenue growth of 111%, to $124.2 million, for its fiscal year ending on Jan. 31. Despite remaining unprofitable, with losses around $44 million, the company is currently valued at $2 billion. While Box does offer personal services, most of its product offerings focus on business and enterprise IT, highlighting collaboration and data-management capabilities. This places the company in competition with older, larger services like Citrix and VMware (NYSE: VMW  ) , which is owned primarily by EMC (NYSE: EMC  ) .

Citrix, currently trading at around $55, reported January earnings data that placed its EPS at $1.04 for the quarter, $0.06 ahead  of the consensus estimate. Price targets are currently converging, including a drop to $65 by Jeffries Group and a boost to $64 by JPMorgan Chase. However, Citrix has suffered recently from shutting down the popular XenApp in favor of XenDesktop, and its mobile/desktop revenue fell 8% in its last quarter.

VMware, meanwhile, is trading around $100 and is expected to release products that will compete more directly with Citrix's XenApp, thanks to acquisitions like mobile data-management company AirWatch, which VMware bought for $1.54 billion. This move, in addition to the growth of its hybrid products, has caused Sterne Agee to raise its VMware price target up to $126 from $97, and CLSA to raise its target to $115 from $99. VMware saw its stock grow by more than 36% last year thanks to "emerging storage" sales, another field that newer ventures tend to specialize in.

Rooting for the underdogs
Into this saturated market come Box, Dropbox, Actifio and others. Tech giants have time-honored methods of dealing with such newcomers: Acquisition or general outspending, and its brother, price-cutting. But no one has shown signs of acquiring these up-and-comers yet -- Hewlett-Packard quickly sunk rumors about a Box acquisition last month. Outspending, on the other hand, only works when it is spent on the right initiatives. 

Cases in point: Google may be dropping prices on its expanded storage options, but Dropbox is pushing into all-new territory with apps like Carousel, which are designed to change the way people save and share photos through cloud services. VMware is working on mobile services, but Box's collaboration-focused features have provided phone and tablet compatibility from the start. Acquisitions like Crocodoc are expanding those mobile world services to be HTML5-compatible. And the Boston-based Actifio is offering cloud backups using "golden master" server copies that cut down on file processing times, a simple service that nonetheless offers serious competition to Citrix, EMC, VMware, and others that still use a more traditional multi-copy format for their backup data.

Whether the new cloud storage IPOs will sway tech investors remains to be seen. Companies like Box will need to find revenue streams that pull them into net profit, while services like Dropbox need to prove the worth of consumer apps like Carousel. But in the crowded cloud market, being smaller, newer, and innovative is still a great way to build buzz -- and capture valuable customer interest.

3 stocks poised to be multi-baggers
The one sure way to get wealthy is to invest in a groundbreaking company that goes on to dominate a multibillion-dollar industry. Our analysts have found multi-bagger stocks time and again. And now they think they've done it again with three stock picks that they believe could generate the same type of phenomenal returns. They've revealed these picks in a new free report that you can download instantly by clicking here now.

Read/Post Comments (2) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 22, 2014, at 3:00 AM, caltowns wrote:

    As Box proved, you can't turn a profit by running a model that is geared towards enterprise, but acts like a consumer provider. I'm not as confident in companies like Box and Dropbox. On the other hand, I have more confidence in companies like DriveHQ and SpiderOak which were born to work in a business setting, and actually can compete with business pricing. We'll see if the predatory pricing trends continue though, and if guys like Google cut into that sort of pricing.

  • Report this Comment On April 24, 2014, at 7:53 PM, LucasOster wrote:

    Think it is worth mentioning that some offerings that are more industry specific might have advantages over the big guys. Throw in their ability to customize offerings based on a company's specific needs and they certainly will be able to capture some great companies. Are you familiar with <a href="">LogicWorks</a>? For the purposes of this discussion--they are small. The quality and attention to what a customer really needs, as opposed to what they want to sell, results in a much higher user experience which I think smart companies expect. Who wants to be Google's billionth customer? Too generic and impersonal.

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2916050, ~/Articles/ArticleHandler.aspx, 9/3/2015 5:49:46 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Tyler Lacoma

Tyler Lacoma is a business writer and editor with experience in international economics, marketing, and tech news.

Today's Market

updated Moments ago Sponsored by:
DOW 16,374.76 23.38 0.14%
S&P 500 1,951.13 2.27 0.12%
NASD 4,733.50 -16.48 -0.35%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

9/3/2015 3:59 PM
CTXS $67.87 Up +0.48 +0.71%
Citrix Systems, In… CAPS Rating: ***
EMC $24.17 Up +0.04 +0.17%
EMC Corp CAPS Rating: ****
VMW $79.82 Down -0.38 -0.47%
VMware CAPS Rating: ****