Buy Box Stock Before the Industry Consolidates

Box (NYSE:BOX) reports earnings on August 26. At this time, the company is projected to deliver earnings per share of 12 cents per share on revenue of just over $190 million. This could be the second straight quarter that the company has posted positive earnings since 2012.

BOX stock has been volatile at time in 2020. Like most stocks, it suffered in the pandemic-related sell-off, falling nearly 50%. However, the stock made a nice recovery and at one point was up nearly 30% for the year. It’s since fallen back and is now up around 3.5% for the year.

Box is an add-on service to a company’s information technology (IT) stack. Box allows users to store and share large documents that would be too big for email or other collaboration tools such as Slack (NYSE:WORK). Box has competition in the form of Dropbox (NASDAQ:DBX) as well as from Alphabet (NASDAQ:GOOGL) with Google Drive.

Box is part of the software as a service (SaaS) sector that investors love. The company generates predictable revenue and is growing its customer base. However, investors are beginning to expect more from the company, and may lose interest in the stock if the company doesn’t deliver.

In the previous quarter, the company confirmed that many customers were opting for a quarterly, as opposed to annual, payment duration. While the company was not recording any attrition at that point, it’s something to watch for in the upcoming report. Another thing that investors will want to pay attention to is the growth the company is expecting from its Box Shield service. This is a security service that helps prevent data leaks, specifically from malware.

Box has a captive audience

There is significant disagreement on what the future of remote work will look like. But there’s little disagreement that the way businesses work, particularly large enterprise level organizations, is going to fundamentally change.

Even when workers return to the office (and they will), there is likely to be a shift towards more physical distancing. This is going to be one of the great opportunities, and perhaps challenges, for a company like Box. On the one hand, you want to promote collaboration. There is an energy that comes from working through a complex problem from different angles. But at the same time, is working “shoulder to shoulder” with our colleagues good for our health? Was it ever?

This is the argument for Box. File sharing is made easy. Everyone that needs access to the document can have it. In a perfect world, work is more efficient. And it enables remote work.

Box is ultimately a productivity tool

The argument against Box is that, at its core, it’s a productivity tool and there are other tools that make Box’s service redundant. And the larger question is that Box or any software solution doesn’t (and maybe shouldn’t) take the place of face-to-face communication. This is particularly true in some industries that would be core customers.

In my past, I worked in marketing communications. This is a key addressable audience for Box. These agencies manage documents that have a huge file size (i.e. contain lots of graphics and photos). Storing these files on a server is cumbersome. Box is a cloud solution that allows these files to be stored with version control so that a team always knows (with a little training) which file is the most current.

However, the question becomes is Box really a replacement for side-by-side collaboration? There is a certain clarity that happens when you’re working alongside a designer and the document just comes together. That’s hard to do remotely. Not impossible, but challenging.

Think of it like this. Does a text always convey everything you want to convey in person? We live in a society where communication is more instant and, at the same time, less clear. Because having the ability to say what we want, when we want isn’t the same as saying what we mean.

Box is a buy … for now

As long as remote work remains a significant issue, Box stock should continue to benefit. In my experience, add-on systems to an IT stack tend to hang around at times when it’s more important to get the work done than how the work is getting done.

At some point, companies will figure out what their “new normal” is going to look like. And when that happens, there may be more attention paid to consolidating some of their multiple IT solutions. If their service is seen as redundant, a company like Box may suffer. But for now, businesses are just trying to keep the work flowing and Box enables that to happen. If Box continues to show they are operating at a profit, I like the stock for the rest of the year.