Odds for future return on BOX Equity are driven by judgments for peak economics influenced by different levels of differentiation in different addressable markets
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Research Category: Input Table for Box, Inc.
The table below summarizes the main judgments driving our odds of future financial results and investor returns. Each of these judgments is supported by research attached directly to it, and you can view that research in the posts that follow. If you have a log-in to BPN Writer, our research and modeling software environment, you can click the table below to open it in BPN Writer. Then you can open the research supporting each cell, and you can change any of the cells yourself and recalculate the odds for financial results and returns, which you can then explore in various interactive charts, each with a different perspective on your updated cases for the future.
Odds for future return on BOX Equity are driven by judgments for peak economics influenced by different levels of differentiation in different addressable markets
View above about Model Issue: BOX Equity Value
Research Category: Input Table for Box, Inc.
The table below summarizes the main judgments driving our odds of future financial results and investor returns. Each of these judgments is supported by research attached directly to it, and you can view that research in the posts that follow. If you have a log-in to BPN Writer, our research and modeling software environment, you can click the table below to open it in BPN Writer. Then you can open the research supporting each cell, and you can change any of the cells yourself and recalculate the odds for financial results and returns, which you can then explore in tens of interactive charts, each with a different perspective on your updated cases for the future.
We see a 50% chance that Box's forward revenue multiple in 2 years is over 1/3 higher than Dropbox's today
View above about Model Issue: BOX Equity Value
Odds of returns on Box through any horizon depend on odds of exit multiples at that horizon, which depend on expectations at that horizon for Growth, Profitability & Scale. We estimate odds for those expectations by Quantifying Stories in Scenarios. For example, we see a 50% chance Box trades at 4.5x forward revenue multiple in two years, materially higher than competitor Dropbox’s 3.5x multiple today. In the chart below, click some multiples to see the expectations that can drive them. If you are reading on a smartphone, flipping to landscape orientation may help.
Future Cash Balance Depends on Differentiation Influencing Peak Share & Pricing, and We See More Cases for Upside to Differentiation than Downside
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With our judgments for key drivers, together we produce many scenarios for long-term cash flows. Odds for future cash flows depend on odds for differentiation and its impact on peak economics for different target markets. Our research reflects a wide range of 100 cases with odds of upside and downside cases. To read the table below on a smartphone, flipping to landscape may help. Then drag the dot at the top to the 75th percentile to see why we see a 25% chance Box makes more than $40 billion net cash over the long term!
We see 10% odds of > 10x return on BOX Equity over 5 years and < 50% odds of losing money, for a mean return of ~5x
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Our story-driven odds for investors’ outlook for this company at various future horizons help us produce odds for its valuation at various future horizons. Hovering over 90% reveals a 10% chance Box trades at 12x today’s value in 5 years, with an equity value greater than $34 billion. On the other hand, we see only a 10% chance of losing more than 50% of your investment. If we had diversified investments like this in a portfolio, we would expect it to return the mean of 5.3x over 5 years. These odds can help us weigh better whether and how much to invest in this company, and with what deal structure.
We Frame Our Key Judgments Across Several Levels of Differentiation, Across Several Markets for Which Investors May Change their Expectations for Box's Differentiation Over Time
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We drive many cases for cash flows and valuation not by maintaining many copies of a spreadsheet and manipulating many inputs manually but by connecting an integrated financial statement model, with appropriate cash flow treatment of growth & decline, to a concise depiction of the main drivers of the fundamental story and how those drivers may be related. Check out a summary of those drivers in the table below, and then check out some of our research attached to some of those key drivers in the posts that follow.
Box's future cash balance depends on differentiation influencing peak share & pricing, and we see more cases for upside to differentiation than downside
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Odds for future cash flows depend on odds for differentiation and its impact on peak economics for different target markets. By Quantifying Stories in Scenarios for those, we produce not just a base case and an update & downside anchored closely to it, but a wide range of 100 cases with odds that reflect our research. In the table below, drag the dot to explore what can drive different cases for long-term cash flow. If reading on a smartphone, flipping to landscape may help.
Future Enterprise Value is Driven Especially by Future Multiple, and We See 25% Odds it is > 50% Above Dropbox's Current Multiple in 2 Years and 10% Odds it is > 50% Below
View above about Model Issue: BOX Equity Value
Odds of returns on BOX Equity through any horizon depend on odds of exit multiples at that horizon, which depend on expectations at that horizon for Growth, Profitability & Scale. We estimate odds for those expectations by Quantifying Stories in Scenarios. In the chart below, click some multiples to see the expectations that can drive them. If you are reading on a smartphone, flipping to landscape orientation may help.
We See About 1/3 Odds of > 5x Return on BOX Equity in 5 Years and 1/3 Odds of Losing Money, for a 5x Mean Return
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Even after its recent rise, Box stock seems to reflect cautious expectations about the sustainability of its differentiation even for its current paying users, not to mention for its non-paying registered users or any other prospective users. We think the odds are higher that value-added features will make Box sticky at least for its current paying users and enable it to not only retain them but continue to increase prices. We see good mean return and upside vs. downside odds. If you are reading on a smartphone, flipping to landscape orientation may help.
6% Shareholder Starboard Value Said BOX Equity can Offer Good Returns if Management Gives Up on 25% Revenue CAGR
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The issue comes when you’re promising more growth than you’re achieving and you’re not able to pivot and balance that profitability and instead, as you may see in Box, you instead continue to spend more and more dollars chasing that growth. Those companies that are reaching that level really need to also understand how to balance profitability.
