
Box S-1 Filing - austenallred
http://www.sec.gov/Archives/edgar/data/1372612/000119312514112417/d642425ds1.htm
======
antr
_On the IPO:_

Nice gross profit margin growth from 67% to 79%, but now we know where vc
money went: sales & marketing.

Profitability seems very very very far away, and in my opinion Box is not a
buy for the average Joe. It seems to me that revenues are extremely dependent
on marketing, as per "50% of the net proceeds in sales and marketing
activities". Now that we can hear cloud storage war drums from afar I don't
see this expense item going down any time soon. This IPO isn't going to be
cheap, at whatever valuation CS, MS and JP come up with.

 _On the VC /Tech industry's double standards:_

Funny how an investors ask and drill down startups on their customer
acquisition costs, customer lifetime value, user & customer numbers, etc. and
none of that information is made available on the S-1, the document that
should really be the "bible" for any investor. I guess the public market is
going to get the short end of the stick again.

~~~
3am
Yeah, the gross margins are telling just part of the story - the sales &
marketing scaling with revenue looks scary. I don't think a company with a p&l
looking like that would necessarily want to go public. I see it that they've
either 1) exhausted venture money, aren't an acquisition target, and see the
public offering as funding of last resort because they're nowhere close to
being profitable or 2) they see this as very close to a market top and are
rushing to take the company public before the music stops. I don't like either
very much.

edit: I should make it clear, I'm just repeating your point for emphasis in my
first sentence. I'm in agreement with your whole post.

~~~
pbreit
I'd be much more scared if they were NOT ploughing money back into the
business in order to grow. IPOs are fundraising events first and foremost.
Virtually all companies that IPO are operating at a loss (ie, nearly
synonymous with "growth company"). The sooner HNers recognize this, the sooner
they will get involved with multi-billion companies.

~~~
antr
Growth companies come at a discount (execution risk, growth is not given,
growth industries = plenty of competitors), I doubt Box's valuation will
support its financials and road ahead. One comment on "virtually all companies
that IPO are operating at a loss", unfortunately this is the opposite case,
companies that IPO tend to be profitable.

~~~
JasonCEC
A company can be spending more than they make, and still be profitable (a la
Amazon) - hence the "plowing money back into the business" comment above. A
company in its growth stage believes there is significant profits to be made
by spending on customer acquisition, and generally is making an informed
decision not to pad the coffers and horde money (a la Apple).

~~~
vvvv
>A company can be spending more than they make, and still be profitable

What?

Anyway, Amazon has razor-thin margins on some products but they're not loss
making.

~~~
JasonCEC
Discretionary spending is different than fixed costs and contractual
liabilities. I am saying that you should think of costumer acquisition as an
upfront expense that leads to future profits - if the business is growing, and
has reasonable margins.

For example, Amazon has 'razor thin' margins and is operating at a slight
loss. Does anyone really argue that they are not 'Profitable'?

------
davidjgraph
For the past few years we've had it had beaten into us that a start-up is an
organization searching for a scalable (and implicitly, profitable) business
model.

Some businesses are always going to need a ton of capital up front: space
travel, medical, semiconductors, etc. Also, social networks for obvious
reasons, twitter doesn't counter this argument. There isn't a huge amount of
utility gained by you when the company your friend works for is using Box.

I see Box need would need some capital, but I can't remotely put it in the
capital intensive category.

Which leaves me thinking that Box simply hasn't yet found a scalable and
profitable business model, it's a large company to still be in the search
stage.

I get the argument that Enterprise sales is a long process and there's a race
against the likes of Dropbox.

Let's say the sales cycle is 2 years. If I have 500 sales people in year 4 and
800 in year 6, I expect those original 500 to be earning twice their wages, at
a minimum, at year 6. If they're not doing that after 2 years, why do I keep
recruiting at such a rate? I also expect some proportional contribution from
sales after 3-4 months, up to 2 years.

Let's call that roughly 600 people-worth of sales, that's a minimum of 1,200
salaries of income. Looking at their numbers they'd have to have gone from
(normalise this to their actual numbers) 500 to 1,700 sales people in 2 years
(or 250 to 850, etc). In that actually the case?

~~~
jackgavigan
Note that sales and marketing accounts for 66.6% (yes really) of total
operating expenses and "Sales and marketing expense [includes] datacenter and
customer support costs related to providing our cloud-based services to our
free users." (p55).

Their Net Loss, as a % of revenues, is decreasing year-on-year:

13 months to 31 January 2012: -227%

12 months to 31 January 2013: -191%

12 months to 31 January 2014: -135%

You can project that curve forward and predict that they'll be cash-flow
positive by the end of 2015.

I think that, if you were to ask Levie off the record (i.e. with the
restrictions imposed by the SEC), he'd say that they've found a repeatable and
scalable business model and that the company _could_ become profitable in the
not-too-distant future.

They could slow their expenses' growth rate further by ceasing to offer free
storage to new users. If they _really_ started running out of money, they
could cut expenses significantly (and increase revenue a bit) by saying to
existing users "No more free storage! Pay us $x/GB from next month or you'd
better download your files because we'll delete 'em!"

I doubt they'll do that, though. I expect they'll simply keep selling and
marketing and growing bigger and bigger, in the same way that Amazon
studiously avoid profitability in order to keep growing and expanding.

Interesting, by the way, that Andreessen Horowitz don't show up in the list of
>5% shareholders.

~~~
davidjgraph
This might be dense, but why would you measure net loss as a % of revenues?
That calculation uses revenues twice, each $ of revenue reduces loss by a $.
Surely, it should be expenses as a % of revenue?

Edit : Sorry, I'm not asking what it is, I'm wondering why a trend in that
particular metric points towards profitability, one day.

~~~
jackgavigan
It was easier. The end result (in terms of projecting forward) is the same
however you do it.

PS: It's not dense, by the way - fair question.

> _Edit : Sorry, I 'm not asking what it is, I'm wondering why a trend in that
> particular metric points towards profitability, one day._

For the purposes of a "finger in the air" projection of when they'll hit
profitability, it doesn't matter whether you use "Net Loss as a % of Revenues"
or "Expenses as a % of Revenues" because, as you pointed out, Net Loss =
[Expenses - Revenues]. The numbers are different (by 100 percentage points)
but the general shape of the curve is the same. If you extrapolate the curve
out, you get to break-even in 2015. It's completely unscientific. I'm
basically pulling numbers out of my ass. I have an MBA, you see. ;-)

------
jackgavigan
Interesting to note that Aaron Levie owns just 4.1% of the company at this
point:
[http://www.sec.gov/Archives/edgar/data/1372612/0001193125141...](http://www.sec.gov/Archives/edgar/data/1372612/000119312514112417/d642425ds1.htm#toc642425_16)

~~~
Oculus
That's actually a very interesting point. I know Mark Zuckerberg owned a
really big chunk (~30%) of FB when they IPO'd. Anyone with insight know if the
norm is closer to Zuckerberg or Levie?

~~~
avree
It's closer to Levie. It's very rare for founders to be able to maintain
strong control of their company through multiple funding rounds.

~~~
_delirium
It's not too common, but larger amounts aren't unprecedented: two big ones
that had even larger ownership were Microsoft (Gates still held 49% of
Microsoft at the time of IPO) and Amazon (Bezos & family held 52%, with Bezos
himself holding 42%). The Google founders also owned a combined 32% (16%
each). Those companies were rather more successful than Box, though.

~~~
oijaf888
Had Microsoft raised much funding before the IPO?

~~~
tanzam75
The only VC with an investment in Microsoft was David Marquardt's Technology
Venture Investors. At the IPO, TVI owned 6.1% of Microsoft.

The remaining 93.9% belonged to the founders, the Board, the employees, and
friends and family. Everyone listed on the S-1, with one exception, took a bit
off the top but held on to most of their shares.

The one exception was Bill Gates's sister's trust fund, which owned 20,000
shares -- 0.1% of the company. She could've been a hundred-millionaire if
she'd held on to it, but her trustee sold it for $400,000 and moved on.

------
owenwil
I've used Box extensively in the Enterprise and never really "got" it - it was
cumbersome and often confusing. It just seems like another layer on top of
what could be used as a first-party integration in something like Onedrive or
Google Drive.

Perhaps where some of the "big" wins are its integration with other enterprise
products like Salesforce, but we just didn't understand it because it felt
like another layer on top of our office suite that wasn't necessary.

~~~
rsync
If only there was a storage platform / offsite backup platform that just gave
you a plain old unix filesystem to do whatever you wanted with.

If only...

------
joeyd
I spent 6 yrs bootstrapping a sales & services startup to $12M rev / 7-fig
net. I watched every $ and plowed My Own Profit back into growth. How easy it
must be to get huge VC checks & spend more on sales than company top-line! And
all we've heard in the ecosystem is how brilliant Levie is.....

------
suyash
Aaron is the CEO and his Salary is only about $155K, seems too less as
compared to other executives. I know that their majority of the compensation
comes in the form of Stock but can anyone explain why and how it works for
executives?

~~~
jdavis703
As a startup CEO your salary is there to provide for your "essentials," such
as housing, food, etc. It is not designed as an income that you can get rich
off of. That ways your personal success is tied to the success of the company,
which incentivizes you to have the investors best interests in mind.

~~~
valleyer
Either that's some damn good food and shelter, or there's a heck of a lot of
"etc.".

------
Nicholas_C
The CFO is only 28 years old. As a twenty-something finance guy I'm very
jealous of the experience he's getting.

~~~
mikemac
To his credit, it looks like he was there from the beginning as a co-founder.
Being a sub 30 CFO seems to be the exception rather than the norm. I, too, am
jealous though.

------
jsm28
This is all coming from a salesman at a different SaaS company. Answering some
questions about how companies may use Box and the key 2 differences (in my
mind) between Box and a competitor like Dropbox:

Someone below said that their company of 50 doesn't see the value add that Box
would bring over Google Drive. In response, Box definitely isn't for all
businesses. They try to tap into companies that use other cloud softwares like
Salesforce, Workday and NetSuite. Box offers these integrations that make it
simpler for businesses running these tools to access data. The goal here is
increasing efficiency and decreasing time spent transferring content from one
place to the next. They also try to tap into industries with complex and
stringent security needs like healthcare. Point here being that Box has
certification and is compliant to securely store certain types of private
information.

Finally 2 key differences: 1\. The rich integrations I mentioned above.
Dropbox really doesn't have that and by many industry reports is not
considered a real competitor of Box (yet) due to improper infrastructure to
support common needs of a business looking to go cloud. 2\.
[http://www.citeworld.com/cloud/23090/box-aaron-levie-
sxsw](http://www.citeworld.com/cloud/23090/box-aaron-levie-sxsw) It seems
Box's goal isn't just to go cloud; it's turning into a platform for developers
to build off of. This seems like a highly profitable pivot to me.

------
dantiberian
I thought it was really interesting that only ~15% of businesses are paying
them money.

    
    
      "34k+ paying institutions"/"225k+ great organisations"

------
capkutay
My company is up to about 50 people now with a good amount of people in each
department (sales, marketing, hr, engineering, etc) and we've never come
across a dire need to spend money on something like box nor has anyone
internally expressed the desire for us to look into it. Google drive has fit
our needs for sharing documents, powerpoints, excel, etc.

Can someone explain the actual value proposition for box? Just google drive
with better features?

~~~
dualogy
Well maybe your company is _lean and smartly frugal_.

Many Enterprisey customers aren't, many are as un-lean and un-frugal as they
can "get away with".

So if there's one tiny little thing a user _thinks_ they need they'll proclaim
to their team "Google doesn't provide this little trinket and for us it's
really mission-critical or it's all for naught" \-- with no one budget-owner
challenging that with a good ol' lean&frugal "do we _really_ need it, as in
_need_ or perish?". Instead it'll be "OK look for alternatives and put it on
expenses".

The bigger they are compared to your 50-people shop, the more "inefficiencies"
they can afford. If they're on the S&P500, they're auto-propped-up. If they're
directly or indirectly close to big-gov or mil or finance contracts, they can
simply overcharge "the biggest spending debtor entity in human history" who
won't bat an eye. If they are a big "NGO" or UN or EU institution, they'll ask
for a nominal discount and pretend to be tight-budgeted but are essentially
same-same.

That's not to say that box is useless, overpriced or that such customers hand
out unlimited money freely to any and all. But they may well be slightly less
"lean & frugal" than your shop, in fact most of them are guaranteed to be, and
if their "urgent necessary needs" (even if they change their minds about their
importance half a year later) are met, they pay up.

------
jmathai
Reading the Risk Factors was a bit depressing.

[http://www.sec.gov/Archives/edgar/data/1372612/0001193125141...](http://www.sec.gov/Archives/edgar/data/1372612/000119312514112417/d642425ds1.htm#toc642425_2)

~~~
nathancahill
They legally are required to list every imaginable risk. The actual chances of
some of these happening are not that likely.

~~~
dctoedt
It's not exactly that they're legally _required_ to list every imaginable risk
-- it's that listing a risk gives their future trial counsel a useful sound
bite.

Suppose that the company were to miss earnings targets, and the stock price
dropped as a result. Just as sure as shootin', there will be plaintiffs'
lawyers claiming that the company wrongfully failed to disclose Risk X or Risk
Y or Risk Z. Proactively disclosing every risk you can imagine is thought to
be one way of combatting that plaintiffs' bar strategy.

Personal anecdote: I used to be the general counsel of a public software
company. I had to draft the risk-factors section of our Form 10-K annual
report, which likewise is filed with the SEC. The first time I did it, I read
a _lot_ of other software companies' S-1s and 10-Ks and harvested as many
risk-factor ideas as I could.

It struck me as peculiar to proceed as if investors were utterly ignorant of
basic facts of business life. But many jurors, and even some judges, might
fall into that category. You can pretty much count on having a plaintiff's
lawyer, professing to be outraged, accusing your company of having covered up
Risk X. In responding to such an accusation, it's a whole lot easier (A) to be
able simply to point to your public disclosure of Risk X, and possibly get the
case dismissed early, without an extremely-expensive and risky trial, than it
is (B) to have to try to convince the judge or jury that, well, no, you didn't
disclose Risk X, but it doesn't matter because everyone supposedly knew about
Risk X already. Option B can be a real roll of the dice; far better to go with
Option A.

------
calciphus
I wish the product wasn't so intolerable to use. It's a ten-year-old approach
to syncing two folders with a minimal amount of collision detection.

Why does everything have to live in their folder? Why do I have to use my
boss's crappy organization structure? Why is everything (sharing, permissions,
history, changes) done through their website instead of on my local machine?

It's amazing to me they've spent as much time and energy on marketing as they
have and haven't spent time getting a product that's usable in an enterprise
in a serious way. It just becomes a bin that marketing throws a bunch of
documents into and no one else in the company uses.

------
ycmike
I think I speak for many that we like Aaron but don't know if Box can become
that iconic enterprise software company that Aaron or others in the company
would like us to believe.

------
sgy
\- It had a net loss of $168 million over that period, compared to a loss of
$112 million the year before. \- Revenue for the year ended January 31, 2014
was $124 million, which is up 111%. \- Sales and marketing expenses were $171
million. Note that this is higher than its revenue. \- Box has $109 million in
cash on hand, and it just raised $100 million in December.

------
cheriot
Like most initial S-1s, there's a lot of information left out (the number of
shares being offered, the price, etc). You can get alerts on the updated
filing at
[http://www.wellreadinvestor.com/companies/105975](http://www.wellreadinvestor.com/companies/105975)

</shameless-self-promotion>

------
dmourati
Anyone care to speculate on when the IPO will happen? I know from the JOBS act
that the S-1 must be made public no less than 21 days before the roadshow.
Beyond that, the roadshow itself would likely last at least a week. That puts
us at end of April at the earliest?

------
jpalomaki
25M registered users but I wonder how many of those are active? Box has been
quite active with their promotions of free storage space, but the actual
limitations on the service made this free space not very useful.

~~~
josephjrobison
Box is just way too slow at syncing. From a product perspective they are
terrible compared to Dropbox as many of us know.

~~~
suyash
I'm not a fan of either, Google Drive is enough for me.

------
ycmike
To those who read this cover to cover: Bravo.

------
icedchai
Looks like 1999 again.

------
marccuban
We have incurred significant losses in each period since our inception in
2005. We incurred net losses of $50.3 million in our fiscal year ended
December 31, 2011, $112.6 million in our fiscal year ended January 31, 2013,
and $168.6 million in our fiscal year ended January 31, 2014. As of January
31, 2014, we had an accumulated deficit of $361.2 million. These losses and
accumulated deficit reflect the substantial investments we made to acquire new
customers and develop our services. We intend to continue scaling our business
to increase our number of users and paying organizations and to meet the
increasingly complex needs of our customers. We have invested, and expect to
continue to invest, in our sales and marketing organizations to sell our
services around the world and in our development organization to deliver
additional features and capabilities of our cloud services to address our
customers’ evolving needs. We also expect to continue to make significant
investments in our datacenter infrastructure and in our professional service
organization as we focus on customer success. As a result of our continuing
investments to scale our business in each of these areas, we do not expect to
be profitable for the foreseeable future. Furthermore, to the extent we are
successful in increasing our customer base, we will also incur increased
losses due to upfront costs associated with acquiring new customers,
particularly as a result of the limited free trial version of our service and
the nature of subscription revenue, which is generally recognized ratably over
the term of the subscription period, which is typically one year, although we
also offer our services for terms ranging between one month to three years or
more. We cannot assure you that we will achieve profitability in the future or
that, if we do become profitable, we will sustain profitability.

~~~
eaurouge
Probably a fake account, but apparently Mark Cuban was an early investor but
had his investment returned over a disagreement on strategy.

~~~
001sky
story>[http://pando.com/2014/01/31/box-is-the-unicorn-that-mark-
cub...](http://pando.com/2014/01/31/box-is-the-unicorn-that-mark-cuban-let-
get-away/)

~~~
adventured
It's a pretty silly story. To keep even 10% ownership of Box through their
massive dilution would have been extremely expensive. Cuban owned a small
position in it. Very understandable how that would not have been worth it for
a guy like Cuban (who has demonstrated he's content with a couple billion, and
never puts even a small % of his fortunate at risk, having stated over the
years that his biggest fear is losing it all).

~~~
001sky
_" DFJ got in early, contributing the whole $1.5 million Series A round in
2006, and participated in every round after to build its 25.5% position. The
Wall Street Journal says the latest $100 million round was at a $2 billion
valuation, which implies Box will likely be valued higher than that at IPO."_

Cuban invested $350K in the seed, so it was just his call.

~~~
adventured
That was understood when I commented.

Not sure what your point is.

~~~
001sky
_" Cuban owned a small position in it"_

No, not if he invested $350k in the seed round (in 2005).

Take a look at the capital raises.#

_________________

# "DFJ got in early, contributing the whole $1.5 million Series A round in
2006"

------
sjg007
So where is the inevitable comparison to DropBox?

