Shares of enterprise content management software company Box (BOX 3.83%) rallied 15.7% this week through Thursday trading, according to data from S&P Global Market Intelligence.
Box had earnings on Tuesday that came in ahead of expectations, along with a solid guide. While Box isn't posting eye-opening growth, it is doing a great job of expanding margins and prudently repurchasing stock.
NYSE: BOX
Key Data Points
Box's growth is better than it seems
In the second quarter, Box delivered 3% revenue growth to $270 million, with adjusted (non-GAAP) earnings per share of $0.44, which was up an impressive 22.2%. Both figures were ahead of analyst expectations.
While 3% revenue growth may seem paltry for an enterprise software company, Box's underlying metrics were actually better. First, a lot of Box's international revenue comes from Japan, and due to the weakening Yen, revenue was affected by 3%, so constant-currency revenue was up a better-looking 6%.
Moreover, billings, which encompass revenue growth plus the change in deferred revenue and speaks toward future growth, grew an even higher 10%, though just 9% in constant currency. And remaining performance obligations, which encompass all longer-term contracts, grew an even higher 12%, and 14% in constant currency.
So, it appears that Box is still feeling some effects from the past couple years' slowdown in software activity but is now seeing things picking up in the medium term. Beginning in enterprise storage and content management, the company has done a good job of infusing more intelligence and capabilities into its software, acquiring AI-related start-ups Crooze earlier this year for application-building automation tool and announcing the acquisition of Alphamoon more recently for intelligent document processing.
Alphamoon uses proprietary technology mixed with leading generative AI large language models. It is another step in Box's journey from being a company that merely helps other companies store and manage digital content and data to one that automates a lot of mundane content handling and processing tasks enterprises have to go through. It looks like those new automation capabilities are catching on with customers.
And the margin story is even better
Not only does Box's top line seem ready to accelerate, but the company has done a great job of expanding margins. Adjusted gross margins increased 4.7 percentage points over just the past year to 81.6%, and adjusted operating margins expanded 3.6 percentage points to 28.4%.
Those are massive margin increases over just the span of just one year, which appears to show Box has either pricing power or operating leverage over fixed costs inherent in its business model. Those profits are fueling share repurchases, which totaled $107 million last quarter alone. And Box's board authorized another $100 million in repurchases on Aug. 25.
Box only trades for about 20 times this year's adjusted earnings-per-share estimates, which is a pretty reasonable valuation for an enterprise software stock. With growth seemingly set to reaccelerate, management achieving nice margin expansion, and repurchases lowering Box's share count, Box looks like a solid value here, even after this week's rally.
