Despite strong criticism from industry watchers in the lead up to Box’s IPO, it really couldn’t have gone much better. The cloud storage company opened at $20.20 last Friday – 44% higher than its IPO price of $14 a share. It then surged to $23.23 per share before the market closed. The figure puts Box’s market capitalisation at around $2.7bn, roughly 12% higher than the valuation placed on it during the last round of funding.
However, the IPO – which took a year to make happen – was only the first hurdle in Box’s marathon race to stardom. It can’t be overstated how crowded the cloud storage space is and so the next challenge for Aaron Levie, Box’s quirky CEO, and his team will be to find the differentiators in its product line and make sure Wall Street knows about them.
But the highest hurdle that is yet to be jumped is how to turn a sales and marketing driven company, which spends more on acquiring a customer than it gets back, into a finely tuned money making machine. Levie has already been promising an advanced suite of tools tailored to specific verticals such as healthcare and retail; the idea being that these products can be sold to existing customers at better margins. Whether this will be enough to stand out from the crowd is not yet known. Raju Vegesna, evangelist at competing cloud software provider Zoho doesn’t think so.
“Yet another Post IPO Non-profit. Almost all cloud and enterprise companies that went IPO are not profitable (think Workday, NetSuite, Salesforce, Jive, Xero, ServiceNow etc.),” Vegesna said.
“Box is no different. The numbers don't look promising either, similar to other cloud companies, with excessive spend on sales and marketing. Given the competition Box faces (Microsoft, Google, Apple, Zoho etc.) who are fast commoditizing the product line Box offers, I am not bullish on the company.”
Another competitor, Egnyte, said that Box could expect to capture certain areas of the market - but not all. Vineet Jain, CEO of Egnyte, commented: “Box will succeed on the low end of the market, Egnyte is positioned to succeed as the high end of the market, and of course Dropbox is poised to take on the consumer market.”
Regardless of the challenges ahead, Box’s IPO was a huge success and will give optimism to the many cloud startups that have had an icy reception from The City and Wall Street.