Box Inc. jumped in its trading debut after raising $175-million in its initial public offering.
The shares rose 66 per cent to $23.23 (U.S.) at the close in New York, after being priced at $14 in the IPO. At that price, Box is valued at about $2.7-billion, above the $2.4-billion valuation it received in a July private-funding round.
Los Altos, California-based Box's debut is the first by a growing number of companies that help businesses store and access to data over the Web instead of through onsite computers. Led by 30-year-old Aaron Levie, Box first disclosed its IPO prospectus last March, and ended up delaying the offering. Meanwhile deep-pocketed rivals such as Microsoft Corp. entered the fray.
"It's impossible to overstate how competitive" the cloud– storage universe is, said Norman Young, an analyst at Morningstar Inc. In addition to Microsoft and Google Inc., there's also Dropbox Inc. and Carbonite Inc., he said.
"In the short term they should be able to carve out a niche. But over time, eventually, it is a commodity service – the people who tend to win these tend to be companies that have massive capital and scale."
The market for file sharing and synchronization software is forecast to grow 23 per cent a year on average to $2.3-billion in 2018, market researcher IDC said in a report looking at 2013. The enterprise side of the market, where Box fits, is growing slightly faster at 27 per cent a year. Box had 14 per cent share in the overall market, behind Dropbox Inc. with 27 per cent and Microsoft Corp. with 17 per cent.
More Competition While competition has heightened, prices for storage have dropped. To combat this trend, Box has created ancillary services on top of storage to differentiate its offerings. These include programs to help companies to build custom applications as well as security features that can be customized. The company also has a consulting arm, which helps customers navigate its services.
Box's financials have improved in the most recent quarter through Oct. 31. Revenue jumped 70 per cent from the same period a year earlier to $57-million, while the net loss narrowed to $45.4-million, the latest filing shows.
"It's a relief," CEO Levie said in an interview. "We have been going down this process for 10 months and we finally executed."
Many of Box's challenges remain. Competition is fierce, and the barriers are low for new entrants, Box said in its prospectus. If Box becomes the target of a security breach, future sales could be harmed. Additionally, part of Box's marketing strategy is to offer a free version of its product, which means some users never pay to use the service, the company said.
Dorm Room Box plans to use 50 per cent of the IPO net proceeds for for sales and marketing, product development and other ways to help expand the business.
Levie, who started Box from his University of Southern California dorm room in 2005, will maintain control of the company after the IPO. The company is issuing Class A shares through the IPO, which represent one vote each. The Class B shares, held by insiders, are worth 10 votes each.
In July, Box raised $150-million from TPG Capital and Coatue Management LLC to have more flexibility on the timing of the IPO. The shares are listed on the New York Stock Exchange under the symbol BOX. Morgan Stanley, Credit Suisse Group AG and JPMorgan Chase & Co. managed the offering.