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Box stock tanks on weak guidance despite Q1 earnings beat

Box’s (NYSE: BOX) stock was down above 10% after the bell as the company reported weak revenue guidance for the full year. However, Q1 results surpassed estimates and second quarter outlook came in line with street expectations.

The stock price rose modestly about 6% in 2019, but in the last 12 months had lost 32%, primarily since last quarter’s earnings, as the firm gave muted guidance.

Mixed Outlook

For the second quarter, the company expects revenue of $169-170 million and non-GAAP loss per share of $0.02 to $0.01. Analysts are anticipating top line to come in at $170.8 million, slightly above what Box had guided. However, a 2 cent loss per share expected is in line with the firm’s estimates.

For the full-year fiscal 2020 outlook, the SaaS provider had lowered its revenue expectations from the prior outlook. Revenue is anticipated between $688-692 million compared to last quarter’s guidance of $700-704 million. The revised sales expectations failed to beat estimates of $701.91 million.

Box Inc. Q1 2020 earnings infographic

Adjusted EPS is now forecasted between $0.00-0.02, better than the prior outlook of 3 cent loss to 1 cent profit. Earnings outlook also surpassed analyst expectations of 2 cent loss. However, it’s important to track the outlook as the year unfolds given that the cloud management platform has scaled down the full-year revenue outlook.

Q1 Performance

Revenue grew 16% to $163 million as the company continues to witness strong demand from existing clients. In addition, it’s seeing good traction for add-on products from existing customers which is a good sign for investors as this would bring in more stable revenues from the current client base.

Adjusted loss per share narrowed to 3 cents compared to 7 cents reported in the prior year. Last quarter, Box had guided non-GAAP loss of 5-6 cents per share and revenue in the range of $161-162 million.

The first quarter results surpassed the street expectations on both the top and bottom line. Revenue was forecasted at $161.45 million and non-GAAP loss of 5 cents per share.

Billings Weakness

Billings rose modestly by 1% to $118.4 million. Billings helps to gauge the future revenue pipeline for the company and hence it is one of the key metrics watched by investors. It’s worth noting that Box derives most of its revenues through subscriptions from its clients who pay it either quarterly or annually based on the terms of the contract.

Box continues the unfavorable trend from last quarter where Q1 billings growth (1%) came in lower than the revenue growth (16%), which is a huge concern for investors. The company continues to see delays in closing larger deals as the sales cycles are taking longer-than-anticipated which has resulted in lower revenue guidance for the full year.

Commenting on the billings weakness, CEO Aaron Levie said: “While we are encouraged by the demand for these larger, more strategic deployments, these deals often have longer sales cycles, which is reflected in our updated guidance.”

Deferred revenue surged 15% to $330.4 million over last year, but decreased by about 12% compared to last quarter. The decrease was primarily due to longer sales cycles in closing $1 million dollars which is hurting the growth prospects of the firm.

Relay Launch

The SaaS provider launched Relay to automate the workflow management of its customers, available for clients from June. The company also has lined up Shield, a threat management tool, to improve the security and risk management for its clients.

We need to wait for more updates from the management in the upcoming quarters to know how new products are received by its customers.

Looking Back

For the Q4 period, revenue rose about 20% to $163.7 million but missed estimates. The adjusted loss was 6 cents per share, which surpassed estimates. Deferred revenue and billings increased by 17% and 16% respectively. Paid customers came in above 92,000 at the end of the fourth quarter.

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