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Box and Dropbox Growing with No Profits in Sight

Posted on Monday, Oct 6th 2014

Cloud storage services provider Box continues to delay plans for their IPO. They are waiting for the right moment to go public as the market conditions right now are too “volatile”. They have already filed their S-1 but now suspect that the timing of the IPO will be better at the end of their current fiscal year or in 2015.

Box’s Financials
Box’s cloud-based services have seen rapid adoption in the past few years. As per their S-1 filed earlier this year, revenues have grown from $21.1 million for the twelve months ending December 2011 to $124.2 million for the same period in 2013. Losses for the year ending December have increased from $50.3 million in 2011 to $168.6 million in 2013.

For the quarter ended April 2014, Box saw revenues grow 94% to $45.3 million while losses grew 13% over the year to $38.5 million.

The company is venture funded so far with $564.1 million raised from investors including TPG, Coatue Management, Mark Cuban, Draper Fisher Jurvetson (DFJ), US Venture Partners, Scale Venture Partners, Meritech Capital Partners, Emergence Capital Partners, Andreessen Horowitz, Salesforce, New Enterprise Associates, Bessemer Venture Partners, General Atlantic, SAP Ventures, The Social+Capital Partnership, Itochu Technology Ventures, Mitsui & Co, Telefónica Digital, Telstra, and Macnica Networks Corp. Their last round of funding was held in July 2014 when they raised $150 million in a round led by TPG and Coatue Management at a valuation of $2.4 billion. Earlier in December 2013, when they raised $100 million from investors, the company was valued at $2 billion.

Box’s Growing Losses
Box’s biggest worry is their increasing losses. They attribute it to continued investments in sales and marketing and R&D efforts. During the recently ended quarter, Box spent $47.4 million on sales and marketing–that is more than their revenues for the quarter. Sales and marketing spend increased 40% over the year and R&D spend increased 58% to $14.9 million.

The Cloud storage market has seen increased competition in the recent past with bigger players like Google, Microsoft, and Amazon expanding their presence in the space. These companies are able to offer similar services like Box to their customers on a freemium model. Box is struggling to make margins at their current revenue rates. If they were to reduce their prices some more, things would become more difficult.

Box’s Improving Offerings
Meanwhile, Box continues to add more offerings to the market. Recently, they improved their mobile offerings by releasing an iPhone and iPad app that will be integrated with Apple’s new iOS8. With the latest iOS App Extensions, users will be able to access Box content from any other app such as iWork and other productivity apps that support the framework. Users will also be able to work on content from Box within a mobile project management tool and share data within a communication app. Not only does the new app increase flexibility of usage for Box users, but it also ensures that the data remains secure.

As part of their enterprise focus, Box has released a special app called Box for Salesforce. The app integrates Box with Salesforce so that users are able to collaborate and manage their content within Salesforce and by using Box Edit, they are allowed to edit documents directly from Salesforce. Users will also be able to save files offline for viewing and presenting later on.

Dropbox’s Product Upgrades
Rival Dropbox also continues to add to their product portfolio in an attempt to gain a bigger market share. Recently, they announced a tie-up with Wunderlist, a task management app. Wunderlist’s app provides its more than nine million users with access to a to-do list that comes with added features such as the ability to share and converse with others. The Dropbox integration with Wunderlist will let these users access their documents through the Wunderlist app to complete their pending action items.

As part of their mobile upgrade, Dropbox has also released an export option for the Android app that will let users export their files to a SD card for a quicker file transfer. Dropbox claims that the feature was a highly requested one, especially by users who wanted to move large batches of files across devices or wanted to access their files at places without Internet connections.

Dropbox has not shared their detailed financials and as last reported, they are expected to be on an annual revenue rate of $200 million in 2014. They continue to be venture funded with $1.1 billion in funding from T. Rowe Price, BlackRock, Y Combinator, Sequoia Capital, Pejman Nozad, Hadi Partovi, Ali Partovi, Accel Partners, Index Ventures, RIT Capital Partners, Valiant Capital Partners, Benchmark, Goldman Sachs, Greylock Partners, Institutional Venture Partners, Glynn Capital Management, and SV Angel. Their last round of funding was held in January 2014 when they raised $350 million from T. Rowe Price and BlackRock at an estimated valuation of $10 billion. The company has not finalized plans of going public soon.

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