Box, Dropbox, and Egnyte Competing in a Tough Space

Last week, cloud-based storage services provider Box (NYSE: BOX) announced its fiscal 2016 revenues. The company may have beat the Street’s forecast, but the market is still cautious with its valuation. The company’s valuation plunged to less than half after it went public early last year. Things haven’t looked much better since with the stock continuing to languish at less than listing levels.

Box’s Financials

Box’s fourth quarter revenues increased 36% over the year to $81.8 million with billings growing 59% to a record $130.2 million. Its streak of losses continues as it ended the quarter with a loss of $0.26 per share compared with a net loss of $1.65 reported a year ago. The results were better than the Street’s forecast of revenues of $81.77 million and a net loss of $0.29 per share.

Box ended the year with revenues growing 40% to $302.7 million and billings increasing 50% to $369.1 million. Net loss for the year fell from $11.48 per share a year ago to $1.67 per share.

Box finally appears to be focusing on improving its profitability. The company expects to be free cash flow positive by the end of the fourth quarter of the current fiscal year. It also managed to reduce its spending during the quarter. In earlier years, Box’s sales and marketing spend had outpaced its revenue. During the current quarter, Box’s sales and marketing spend was a comparatively modest $63.3 million.

For the current quarter, Box forecast revenues of $88 million-$89 million compared versus analyst estimate of $86.9 million. It expects to end the current fiscal year with revenues of $390 million-$394 million with a net loss of $0.85-$0.83 per share. The market was projecting the year’s revenues at $392 million with a net loss of $0.88 per share.

Box’s Partnerships

During the quarter, Box continued to expand its relationships with key enterprise vendors. After announcing its tie-up with IBM last year, Box has seen additional sales commitments from IBM that are expected to last over a decade. The two announced the availability of two new product integrations with IBM Case Manager and IBM Datacap. Box is also working on a new workflow technology with IBM that will leverage IBM Watson’s intelligence.

Box also strengthened its partnership with Microsoft and announced three new integrations with Office 365 that will now support integrations with Microsoft Office Online with real time co-authoring, Office for iOS, and Outlook.com. It also introduced Box for Enterprise Mobility Management with Microsoft Intune to offer cloud-based mobile device management, mobile application management, and PC management capabilities. It released Box for Windows 10 universal application that will deliver seamless content experience across Windows 10 devices.

Box entered into agreements with Salesforce to provide Box customers the ability to collaborate within Salesforce.

As part of Box’s security enhancement, it introduced Box KeySafe, a solution that allows customers to manage encryption keys in the cloud.

Its stock is trading at $12.17 with a market capitalization of $1.47 billion. It touched a high of $20.60 in June 2015. It has recovered from the 52-week low of $8.82 it touched in January this year. Early last year, Box had listed on the exchange at $14 a share. Prior to listing, Box had been valued at $2.4 billion in its venture-backed avatar.

Dropbox’s Enterprise Offerings

Meanwhile, Box’s competitor Dropbox is expanding its presence into the enterprise segment. For a while, Dropbox focused on attracting individual users to its service. Now, the company is expanding its presence. The company recently released an Enterprise tier for Dropbox for Business and it claims to be seeing strong traction. Dropbox relied on a bottom-up approach to gain its business users – “when enough people use technology in their personal lives, it’s only a matter of time until it infiltrates their work lives and permeates throughout the company”. Dropbox already has 500 million users and it is hoping to convert them to business users. Dropbox claims that it is being used in almost 8 million organizations and is adding as many as 25,000 enterprise customers each quarter. 75% of Dropbox’s enterprise customers are based outside the US.

Dropbox is also working on a beta release of a new team collaboration tool – Paper. The collaborative tool is currently a web-only app that grants users access through their Dropbox account. It works similar to Google Docs and allows multiple users to edit a document at the same time with changes highlighted through different colors and identified by the user’s full name displayed in the margins. Currently the service is very basic and offers limited fonts, text sizes, and formatting options because the company wants to keep the service as a medium of collaboration of ideas and not distract users by focusing on formatting. The move will help Dropbox make progress in the Enterprise Collaboration Market which is forecast to grow from $47.3 billion in 2014 to $70.61 billion in 2019.

Dropbox’s Financials

Dropbox does not disclose its financials, and its latest revenues and profitability figures are unknown. According to reports, the company was trending at revenues of $300 million-$400 million for 2014 and $200 million in 2013.

Dropbox has raised $1.1 billion so far from debt and equity financing. Its investors include JPMorgan, BlackRock, Innovation Department, QueensBridge Venture Partners, Salesforce Ventures, T. Rowe Price, Index Ventures, Accel Partners, AFSquare, Benchmark, Glynn Capital Management, Goldman Sachs, Greylock Partners, Institutional Venture Partners, RIT Capital Partners, Sequoia Capital, SV Angel, Valiant Capital Partners, Ali Partovi, Amidzad Partners, Bobby Yazdani, Hadi Partovi, Pejman Nozad, Signatures Capital, and Y Combinator. In January 2014, Dropbox had raised $350 million at a valuation of $10 billion. Since then, the valuation, as predicted, has fallen significantly as both Fidelity and T.Rowe Price cut down their valuation by as much as 51% in Q4 2015.

Egnyte’s Financials

Both Box and Dropbox probably need to take inspiration from another player in the same space – Egnyte. Mountain View-based Egnyte offers a hybrid approach to cloud-based storage. Its customers can store files either on-premise or on the cloud because Egnyte realizes that most organizations would like to keep some of their files on-premise to maintain higher security and compliance. Its platform allows organizations to decide which files are to be stored behind their firewalls on their premises and which of those are to be made available on the cloud. The platform also makes suggestions on storage locations based on a smart algorithm.

Egnyte has also always been conscious of its financial model. The company does not offer any freemium options and all services are available at a price. Prices vary depending on the software usage and the number of employees that are provided access to the platform. Egnyte does not disclose its financials either, but is expected to generate $100 million in revenues this year. The company is still not profitable.

The company is venture funded with $62.5 million received from investors including Kleiner Perkins Caufield & Byers, Google Ventures, Polaris Partners, Northgate Capital, CenturyLink, Seagate Technology, and FLOODGATE. Its last round of funding was held in December 2013 when it raised $29.5 million at an undisclosed valuation from Seagate Technology, CenturyLink, Northgate Capital, Kleiner Perkins Caufield & Byers, Google Ventures, and Polaris Partners. Recent valuation figures are not known.

The cloud-based storage market is rife with competition. Dedicated players like Box, Dropbox, and Egnyte are facing competition from giants like Google, Microsoft, and Amazon that provide similar services. Most of these giants bundle the cloud-storage segment with some of the other services they sell and offer cloud space for free. Dedicated vendors have thus had to reduce prices and rely on alternate approaches like partnerships to gain a bigger market share. The current price-based competition is hurting their profitability, and in turn their valuations.