Box Following Proxy Fight Victory: What's Next?

Box's Journey: From Startup to Strategic Growth

Box, as a publicly traded entity, has experienced a somewhat turbulent history. Initially launched in 2005 as a consumer-focused file sharing platform, the company strategically pivoted in subsequent years.

This shift involved concentrating on the enterprise sector and developing a contemporary content management system tailored for the evolving cloud and mobile landscape.

Early Challenges and Market Reception

Once highly regarded within Silicon Valley’s startup community, Box encountered difficulties following the submission of its S-1 filing in 2015. Concerns regarding its rate of cash expenditure arose.

Consequently, the company’s initial public offering was postponed for several months, potentially foreshadowing the challenges it would face in gaining market acceptance in the years that followed.

More recently, Box was involved in a proxy contest with Starboard Value, a significant shareholder, which the company ultimately resolved in its favor.

A Pivotal Moment and New Investment

Currently, Box stands at a crucial juncture. A $500 million investment from KKR provides the company with capital for strategic acquisitions.

These funds will also be used to enhance its product roadmap and potentially stimulate inorganic growth, as demonstrated by the February acquisition of e-signature provider SignRequest.

Revenue Trends and Recovery

Box has demonstrated positive revenue performance in recent periods. Following a 13.6% growth rate in the third quarter of FY20, a decline was observed, with growth falling to 8.3% in the fourth quarter of FY21.

This downturn prompted Starboard Value to initiate its proxy battle. However, Box rebounded from this low point, initiating a gradual upward trend that management anticipates will persist in the coming quarters.

While the depicted growth isn't substantial, it signifies positive momentum. Co-founder and CEO Aaron Levie has previously navigated challenging situations.

He adopted a largely accommodating stance towards his critics, acknowledging areas for improvement and emphasizing his commitment to the company’s ongoing development.

Looking Ahead

Discussions were held with Levie to explore his experiences and his vision for the future direction of the company.

He shared insights into the trials overcome and the strategies planned to propel Box forward.

Navigating Challenges and Future Outlook

The past year has presented significant challenges for Levie, as CEO of a company engaged in a proxy battle. Despite these difficulties, he maintains a positive outlook and continued dedication to his role.

This resilience is particularly noteworthy considering Levie founded Box in 2005 while a student at USC, dedicating his entire professional life to the company’s development.

“Throughout every challenging situation we’ve encountered, a consistent factor has been my genuine excitement and optimism regarding the future,” Levie shared with TechCrunch. “This extends to technology as a whole and its potential to positively impact the world.

My enthusiasm is even greater when focused specifically on Box and the possibilities inherent in what we are creating.”

A Critical Juncture for Box

However, Alan Pelz-Sharpe, founder and principal analyst at Deep Analysis, believes the company is entering a decisive phase. “The coming year is absolutely critical for Box,” he stated.

“Successfully justifying the outcome of the proxy fight requires the company to advance the Box platform, achieve consistent growth, and solidify its unique position within the market.”

This week’s BoxWorks, the company’s annual customer conference, provides an opportunity to communicate its future direction to its user base.

Pelz-Sharpe, a long-time observer of Box, emphasizes the need to demonstrate its evolution into a comprehensive platform – a goal the company has pursued for several years.

Defining a Niche in a Competitive Landscape

“While simple file-sharing has become commonplace, the development of highly secure, distributed work applications built on a global file-sharing foundation represents a promising and emerging niche,” Pelz-Sharpe explained.

“Box has a significant opportunity to establish itself as a leader in this specialized area.”

Evolving with the Times

For several years, Box has been focused on developing a comprehensive platform. Recent announcements made at BoxWorks demonstrate continued progress toward this goal.

During the event, Box unveiled three key initiatives designed to capitalize on the increased adoption of online platforms spurred by the COVID-19 pandemic. Initially, the company is broadening the security framework initiated in 2019, known as Box Shield, intended for the protection of files stored within the Box ecosystem. New malware detection capabilities will be introduced at BoxWorks, ensuring users do not inadvertently share files containing malicious code.

Levie explained, “The central question is how to empower users to safeguard their systems against data breaches and improve the detection of malware circulating within their networks, potentially shared by employees or intentionally introduced. We aim to detect and defend against such threats, and to provide a recovery path in the event of a ransomware attack.”

Concerning collaboration, the company is releasing an upgraded version of its Notes application. Furthermore, the e-signature functionality acquired through SignRequest will be included with the app at no additional cost, positioning it as a competitor to Dropbox and HelloSign, and to some degree, DocuSign.

Pelz-Sharpe commented, “Offering e-signature capabilities for free represents a clear challenge to Dropbox and HelloSign. More importantly, it provides another component for users to construct applications. I anticipate further acquisitions by Box – they’ve historically been infrequent – and a continuation of this strategic approach.”

Similar to Zoom, Box acknowledges its role in assisting clients in adapting to the evolving work landscape of 2021. As Levie highlighted in his BoxWorks keynote, the nature of work is undergoing fundamental changes, and Box aspires to be central to this transformation.

“Our core mission is now more vital than ever before in our company’s history. We are dedicated to shaping the future of collaborative work, and the trends driving this evolution have only accelerated over the past year. We are witnessing the beginning of a significant shift in how individuals work together,” he stated.

Pelz-Sharpe noted that the recent proxy battle has concluded, making it premature to view this event as a definitive turning point for the company. Nevertheless, he holds high expectations for substantial platform expansion in the coming year.

Regarding perceptions of Box’s performance, Pelz-Sharpe prefers to characterize it as a long-term strategy. The company’s most recent quarterly results showed revenue of $214.5 million, translating to an annualized run-rate exceeding $858 million with a growth rate of 11.3%.

“In Silicon Valley, companies typically prioritize rapid growth at all costs to achieve critical mass, or they enhance their offerings to facilitate acquisition. Box has adopted a balanced approach, and while its revenue doesn’t reach multiple billions, it possesses a remarkably strong and remarkably dedicated customer base, generating significant recurring revenue,” he explained.

These factors suggest a positive outlook for the company, provided it can leverage the positive outcome of the proxy contest to drive substantial and sustained growth in the future.