Please ensure Javascript is enabled for purposes of website accessibility

Box Inc Had a Better-Than-Expected Q4, but Is That Enough?

By Motley Fool Staff – Mar 23, 2016 at 10:30AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

While Box is growing well for its size, it has little competitive edge against industry giants

Cloud storage specialist Box (BOX -1.45%) reported better-than-expected fourth quarter earnings last week that surprised Wall Street analysts with their strength. But when it comes to whether that translates into making the stock a buy, the jury is out.

In this clip from the Motley Fool Money podcast, Jason Moser explains why, despite the company's seemingly strong performance and growth, Box's potential remains so shaky, and what investors should do before buying into the company.

A transcript follows the video.

A secret billion-dollar stock opportunity
The world's biggest tech company forgot to show you something, but a few Wall Street analysts and the Fool didn't miss a beat: There's a small company that's powering their brand-new gadgets and the coming revolution in technology. And we think its stock price has nearly unlimited room to run for early in-the-know investors! To be one of them, just click here.

This podcast was recorded on March 11, 2016. 

Chris Hill: Box, the cloud computing business, surprised Wall Street with better-than-expected fourth-quarter results. Jason, I like an underdog as much as the next guy, but holy cow, they're competing with the likes of -- this is a $1.5 billion company that's competing with [laughs] IBM, Microsoft, and EMC.

Jason Moser: Yeah, you're right. Just like Jeff was talking about with Square, the jury is still out here as to whether this is a potentially good investment or not. I think the biggest question is, what is the competitive advantage here? This is enterprise cloud storage and solutions, which is seemingly just dime-a-dozen at this point. Obviously a very large market and a very small company.

They make money via the subscription model that they have. The number of paying customers, companies, and organizations is 57,000, which is up from 45,000 a year ago. Their user base of 41 million registered users is impressive. But when you consider that only 10% of that user base is actually paying for Box's services, that puts things into a little bit more perspective there. So, customer acquisition costs are very high. The key is to acquire the customers, keep them, and upsell them. Very difficult to do in this market, because it is extremely competitive. I think leadership is an asset here, but again, I'm not sold on the competitive advantage here, and I would advise shareholders or potential shareholders to sit back and give this one a little bit of time to play out.

Ron Gross: Have all non-rectangular names been taken? Is that where we're at this point?

Hill: [laughs] Give us time.

Jeff Fischer: [laughs] "Circle" will be the next company.

Jason Moser has no position in any stocks mentioned. Ron Gross owns shares of Microsoft. Chris Hill has no position in any stocks mentioned. Jeff Fischer has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.