Box (NYSE: BOX) Stock Soars 77% in Debut, but Challenges Remain

Box Inc. (NYSE: BOX) stock soared 77% in its debut today (Friday), reaching a high of $24.73 per share.

Box stockThe Box IPO raised $175 million, as the company sold 12.5 million shares for $14 each. The $14 offer price was above its proposed range of $11 to $13 per share.

BOX stock opened at $20.20 and closed at $23.15. In its first day of trading, more than 41.4 million BOX shares exchanged hands.

Box's market cap is now $2.8 billion. In a summer round of funding, the company claimed a valuation of $2.4 billion.

Morgan Stanley (NYSE: MS), Credit Suisse AG (NYSE: CS), and JPMorgan Chase & Co. (NYSE: JPM) served as lead underwriters on the deal.

Box was founded in 2005 and first filed for its IPO more than 10 months ago. The deal was delayed several times as Chief Executive Aaron Levie wanted to time the market perfectly. His timing couldn't have been much better.

Box IPO at a Glance

Money Raised: $175 million

Shares Sold: 12.5 million

Offer Price: $14

Open Price: $20.20

Highest Price: $24.73

First Day Trading Volume: 41.4 million

Box is a cloud-storage company with more than 25 million registered users. The company works with more than 34,000 companies. It provides clients with file sharing and cloud content management services. Secure file sharing, project collaboration tools, and encryption methods are among the company's other services.

Some of Box's biggest clients include Procter & Gamble Co. (NYSE: PG), Pandora Media Inc. (NYSE: P), and Nationwide Insurance.

For personal accounts, Box provides up to 50 gigabytes of free storage. It then charges monthly fees of $5, $15, and $35 for premium services and additional storage.

Box is one of the most well-known names in the quickly growing cloud computing industry. In 2014, Forrester Research estimated the industry will grow to $241 billion by 2020.

But Box has bigger ideas that just selling cloud storage. Levie recently told investors the company plans to differentiate its products based on industry.

"We're starting to see that in each industry, the way you use data, the way you use information, the really transformational ways you use the cloud tend to be fairly different," Levie told The Wall Street Journal.

Specifically, Levie wants Box to become a major player in the healthcare and retail industries.

That shift is very important for BOX stock moving forward - because the company's challenges continue to mount...

How to Play Box Stock Following the IPO

By far, the biggest obstacle for BOX is the company's competition.

One of its biggest competitors, DropBox, is also reportedly close to an IPO. DropBox focuses more on individual customers than Box, but they do share many of the same services.

And DropBox is much larger. In January 2014, DropBox completed a $250 million round of funding that placed its value near $10 billion.

And it isn't just startups that are challenging Box...

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Google Inc. (Nasdaq: GOOG, GOOGL) offers the "Google Drive" service, which allows users to store up to 15 GB for free.

Microsoft Corp. (Nasdaq: MSFT) has been upgrading its "OneDrive for Business" product to directly compete with Box and DropBox. Amazon.com Inc. (Nasdaq: AMZN) also entered the space with its Zocalo service.

And competition isn't the only reason to hold off on buying BOX stock now. The industry is growing, but Box's revenue growth is slowing. Last quarter, revenue grew 70%. The quarter before that it was 81%.

The company is not profitable yet either. Last quarter, Box reported losses of $45.4 million. Granted, the company has narrowed losses - that was down from $51.4 million the year before - but it's still far from profitable.

"For most companies in this space, making money is very difficult," Gartner's Vice President for Mobile Computing Charles Smulders told The New York Times.

The Bottom Line: BOX stock soared out of the gate, and institutional investors who were able to buy into the IPO are making huge profits. But for retail investors, this is not a stock to buy now. The IPO hype has driven the stock too high. There are too many concerns for this to be a smart investment right now, especially at inflated prices.

 

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