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Box Slightly Beats Street in Q3, Raises Full-Year Guidance

Box is still growing, and its expenses are shrinking slowly.


Shares of Box, the cloud storage and collaboration company, fell slightly after the company reported third-quarter sales that were better than forecast and a loss that was in line with expectations.

Box boosted its sales guidance for the fiscal year saying it expects to post revenue of as much as $300 million for the year, up from a previous estimate of as much $297 million.

Revenue was $78.7 million, up 38 percent from the year-ago quarter. Analysts had expected $77 million. Billings rose 37 percent to $89.4 million. Box recorded a per-share loss of 31 cents on a non-GAAP basis, an improvement from the loss of $2.32 it reported a year ago. Shares fell by less than 1 percent in after-hours trading.

Gross margin, a key measure of the potential for profitability, was 75.4 percent. Box’s spending on sales and marketing rose to $64 million from $55.2 million a year ago, but fell as a percentage of revenue to 81.3 percent, down from 88 percent as recently as June.

Box uses free accounts as a means to attract customers to its paid tiers of service and carries the cost of those free accounts as a marketing expense. Registered users rose to 41 million. The number of companies paying for Box’s services rose to 54,000. The company added 4,000 new customers in the quarter.

In an interview with Re/code, CEO Aaron Levie said Box should begin generating a positive cash flow by the fourth quarter of next year. “We’re seeing the business model we put in place begin to play out,” he said. “Every single quarter the scale of our revenue increases while our sales and marketing costs increase but at a slower rate. When we first filed to go public, the biggest question people asked about our business concerned how it was all going to work, and now we’re starting to see the answer.”

One big recent change, Levie said, is that Box has started to sell its service as a platform upon which companies can build their own custom applications, while at the same time building its own products on the same platform. That has boosted what existing customers are willing to pay. One customer that adopted the platform is paying between four and five times more than it had before. “This was the first quarter we were able to sell as a platform and it really came together this quarter,” Levie said. “You can expect to see more of that in the future.”

The company is facing increasing competition from Dropbox for cloud storage services aimed at corporate customers. According to data from Okta, which tracks cloud application usage among its customers, Box was the third most widely used application, with sign-ons rising 62 percent year-on-year as of last month. Only Microsoft’s Office 365 and were more widely used on Okta’s network. Dropbox came in ninth, but its use among Okta customers grew 93 percent.

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