Box: Strong billing and still underappreciated

The second quarter earnings season is now nearly over, and so far it’s proven to be a great quarter for some long-forgotten tech stocks whose growth trajectories have reached a mature stage. box (NYSE: BOX) is one of this quarter’s winners: The cloud-based file storage and sharing company saw its stock explode ~7% after reporting Q2 results and upgrading its full-year outlook.

Given the strong trajectory we’ve seen in Box’s billings and its better growth rates than its main rival Dropbox ( DBX ), I think there’s plenty of upside left.

The bull case for Boxing looks bright against the guidance momentum

I last wrote a bullish note on Box in May when the stock was still trading in the ~$25 range. Despite the rise in stock since then, Box has vindicated itself its higher valuation with increased billings growth rates as well as significant expansion in operating margins: as such, I reiterate my buy rating on this company.

The first highlight to note: Box improved all metrics for its FY25 guidance. The company now expects revenue of $1.066-1.090 billion, or 5% annual growth. This is due to a combination of both stronger underlying performance and billings (which accelerated in Q2, as we discuss in the next section), as well as a stronger yen against the dollar (a third of Box’s revenue is international, and about 60% of that is Japan – or in other words, Japanese revenue is about 20% of the company’s total).

The company also raised its operating margin guidance by 50bps to 27.5%, while it now also expects pro forma EPS of $1.64-$1.66, or 6% growth to means. And looking ahead to next year FY26 (Box’s year ending January 2026), Wall Street analysts expect revenue of $1.15 billion (+6% y/y) and $1.79 in pro forma EPS (+8% y/y).

We note that Box’s valuation still remains quite reasonable relative to these lofty estimates. At current share prices after earnings of nearly $31, Box has a market cap of $4.48 billion. After we offset the $482.2 million in cash and $371.8 million in debt on Box’s last balance sheet, the company’s bottom line the enterprise value is $4.37 billion.

This puts Box’s rating at:

• 4.0x EV/FY25 Revenue and 3.8x Revenue EV/FY26
• 18.8x FY25 P/E and 17.3x FY26 P/E

With the S&P 500 trading at a forward P/E of ~20x (and many tech stocks trading at high single-digit earnings multiples), Box is still at a pretty attractive entry point.

Beyond the short-term directional momentum and cheap valuation, here are the top long-term fundamentals to be bullish on Box:

• Major TAM of $74 billion as Box continues to expand its product portfolio. Despite the competition, Box cites a massive $74 billion market for storage, content collaboration and data security. That’s a big enough space for multiple carriers, and it also suggests that Box currently only has about 2% penetration in this overall market. Recent portfolio additions like Box Sign have greatly expanded Box’s potential.
• Multi-product strategy generates attractive cross-selling. More than two-thirds of new Box deal bookings come from Box Suites customers who purchase more than one Box product. Additions like Box Sign continue to pave the way for incremental revenue growth.
• Run by the founder. While many Silicon Valley startups have transitioned from founders to professional CEOs, Box remains led by its co-founders Aaron Levie and Dylan Smith as CEO and CFO, respectively.
• Best of breed for enterprise users. Of all its known competitors, Box is the only enterprise-focused company. The company touts its security features plus advanced capabilities like Box Skills as a key differentiator from Dropbox.
• Steady upward march of profit margins. Box expects to achieve a pro forma operating margin of 27.5% in FY25, up from 24% in FY24. Cross-selling and expanding existing customers will drive top-line efficiencies, while the company’s continued shift to public cloud servers will drive gross margin expansion.

Stay long here and keep riding the upward rally.

Download Q2

Let’s now take a closer look at Box’s latest quarterly results. The Q2 earnings summary is presented below:

Box revenue rose 3.3% year over year to $270.0 million. But perhaps more importantly, Box’s billing growth rates showed a healthy acceleration with 10% y/y growth after a weak Q1 billing quarter with -1% y/y growth.

As regular investors in enterprise software companies know, invoicing is the best picture of a subscription software company’s longer-term growth trajectory because it captures the deals signed in the quarter that will be recognized as revenue in future quarters .

It’s worth noting that rival Dropbox grew revenue by just 1.7% y/y in Q2, so Box’s growth roughly doubles that of its biggest rival.

We also note that Box managed to maintain a consistent churn rate while net revenue retention rates improved sequentially to 102%, indicating a superior 2% sale net of churn.

Co-founder and CFO Dylan Smith’s remarks on Q2 earnings prompt those who will improve billing and retention performance:

Second quarter billings of $256 million were up 10% year-over-year and 9% year-over-year in constant currency, beating our expectations for low- to mid-single-digit growth. About half of this performance was driven by strong bookings, particularly in Japan and our public sector business. Q2 billings also benefited from about $3 million in early renewals, as well as about a $4 million tailwind from FX versus our prior expectations.

Our net retention rate for Q2 was 102%, up from last quarter’s net retention rate of 101% and driven by improving spot price trends. Our annual total loss rate continues to remain stable at 3%, demonstrating best-in-class product resilience to our customers. We now anticipate exiting FY ’25 with a net retention rate of approximately 102%, an improvement over our previous expectation of at least 101%.

The company notes that attached rates for the company’s Suite sales (which include multiple products) reached a record 87% of large deals. Box also announced a new integration with Salesforce’s Slack (CRM), which allows users to access Box AI queries and search through their Box content directly from the Slack interface—a powerful new release for collaborative teams.

On the profitability front, Box also grew its pro forma operating margins by 360 bps y/y to 28.4%:

The company’s pro forma EPS of $0.44 also beat Wall Street expectations of $0.40, a 10% gain.

Key recommendations

Box is no longer a bastion of hyper-growth and excitement, but it is incredibly consistent: with healthy billings growth, steady net expansion rates and improving profitability – all at a very reasonable valuation. Stay tuned as Box continues to deliver reliable benefits.