In fields as varied as business apps, cloud infrastructure services, database software and augmented reality hardware, Microsoft (MSFT) has been demonstrating impressive execution lately, as Satya Nadella & Co.’s attempts to overhaul the software giant’s culture and react more quickly to major tech trends keep paying off. Enterprise cloud storage, file-sharing and content management software firm Box (BOX) , whose shares are down over 18% post-earnings, might have just become a casualty of those efforts.
Box topped January-quarter (fiscal fourth quarter) EPS estimates, but revenue of $163.7 million (up 20% annually) was slightly below a consensus estimate of $164.2 million. And in what’s a seasonally big quarter for Box’s subscription billings, the company reported billings of $237.7 million, up 16% and well below a consensus of $254.7 million.
Box also guided for April-quarter revenue of $161 million to $162 million and fiscal 2020 (ends in Jan. 2020) revenue of $700 million to $704 million, respectively below consensus estimates of $169.7 million and $732.8 million. The midpoint of Box’s fiscal 2020 revenue guidance range, which admittedly might be a little conservative, implies 15% annual revenue growth, down from fiscal 2019’s 20% growth.
Also: Box forecasts its billings will be down by a low-single digit percentage annually in the April quarter, before “returning to more normalized growth rates for the remainder of [fiscal 2020].” The company blames several one-time factors.
Peer Dropbox (DBX) sold off post-earnings last week. However, Dropbox, whose sales skew more towards individuals and small businesses than Box’s, issued above-consensus sales guidance. Unlike Box, Dropbox’s selloff had much to do with the company’s margin and cash-flow guidance, which is being impacted by its near-term spending plans.
On its earnings call, Box blamed its current sales and billings pressures in large part on “disappointing execution” in the EMEA region and lengthy sales cycles for some 7-figure deals. The company also says one major customer “significantly reduced” its spending upon renewing its deal with Box in February, and that this deal reduction will act as an $8 million revenue headwind in fiscal 2020.
Box does insist its total deal win rates remain stable. However, the company isn’t blaming macro conditions for its sales and billings shortfalls, and its numbers come at a time when total enterprise software spending remains pretty healthy. And it’s hard to ignore the fact that top rival Microsoft continues seeing strong momentum for its business Office 365 plans, which bundle the company’s OneDrive for Business cloud storage and file-sharing platform.
Microsoft’s Office commercial products and cloud services revenue, which also includes its legacy Office software license business, rose 11% annually in the company’s December quarter. Office 365 commercial revenue grew 34%, with installed seats rising by 27%.
Separately, during a recent Morgan Stanley conference talk, Microsoft exec Dave O’Hara suggested his company is only “sort of at the halfway point or a little past that in terms of moving customers” from traditional Office licenses to Office 365. He also argued there’s more room to grow penetration rates for Microsoft’s costly E5 Office 365 plans, which among other things comes with unlimited OneDrive for Business storage.
Microsoft and Box, it should be noted, were given the highest rankings in research firm Gartner’s 2018 Magic Quadrant report for content collaboration platforms. Microsoft had a slightly higher position on the quadrant’s “ability to execute” axis; Box had a higher position on its “completeness of vision” axis.
As Gartner and others note, Box still has some valuable strengths in its fight against Microsoft, as well as against other rivals such as Dropbox and Citrix Systems (CTXS) . Among them: The company has done a very good job of creating advanced security, compliance and content management features for its platform, as well as creating solutions for major verticals such as healthcare and government agencies. It also now has a large ecosystem of third-party apps and services that integrate with its offerings, and is working on a slew of product updates related to content management, security and workflow automation.
But Microsoft has clearly established OneDrive as a serious competitor to Box, and is both undercutting Box’s pricing via Office 365 bundles and has been using its tremendous enterprise reach to rapidly grow Office 365 adoption. All of that could be weighing on Box’s top line as the company continues battling Microsoft for large enterprise deals.
Get an email alert each time I write an article for Real Money. Click the “+Follow” next to my byline to this article.