Why Box Is Digging in Its Heels on an IPO

Box, the cloud storage and collaboration company, is delaying its target date for an initial public offering until its fiscal fourth quarter, which ends in late January 2015, Bloomberg reports, citing sources close to the matter.

This marks the latest in what is becoming a string of delays for the company, which filed for an IPO in March with plans for it to initially go public as early as June. But after what was cited as faltering technology stock prices, the Los Altos, Calif.–based company put off setting a concrete target date.

In July, to buy itself more time, Box raised an additional $150 million in funding at a valuation of $2.4 billion. At the time, sources told outlets that the company planned to go public sometime between Labor Day and the end of the year.

So why continue to delay? Bloomberg cited a source who claims that despite Alibaba's colossal IPO, the company is still holding out for more favorable market conditions.

Related: What Would Make Mark Cuban 'Combust' If He Ran Box

This, however, probably isn't the central reason. As The Wall Street Journal notes, the U.S. IPO market is on pace for its biggest showing since 2000, and most IPO experts predict the market will pick up in the wake of Alibaba's IPO, which was the largest in history.

More likely, Box is looking to improve its financials to increase its chances of pulling off a successful IPO. "Even in a bull market where technology companies are seeking extraordinary valuations, Box stands out as a particularly glaring example," says Brian Hamilton, chairman of the financial information company Sageworks. While Box has a large user base and its revenues are growing at a healthy rate, Hamilton doesn't believe the company's financials justify a multi-billion price tag. Box is still losing too much money. As you can see in the graph below form Sageworks, the company's sky high valuation along with its deep net profit loss could point to trouble.

Click to Enlarge+
Why Box Is Digging in Its Heels on an IPO

Box's financials compared to other tech companies. The company's finances are from 2013, the most current yearly data.
Image credit: Sageworks

Related: Why Box's Co-founder Turned Down a $550 Million Offer That Would Have Made Him 'Phenomenally Wealthy' At 26

"We've seen technology companies attempt to go public before they're profitable, but not in this way," Hamilton says. In July, the company released updated regulatory filings, which revealed its financial performance for the first quarter of its fiscal year. While revenue was up -- the company brought in $45.3 million in that three month period, up 93.6 percent from its first quarter the previous year – the company's total losses had also widened to $38.5 million, up 13 percent from the same time last year. "Any lack of profitability is worrisome," Hamilton says. "Another delay in their IPO is not surprising, and may reflect a lack of confidence in the company's financial strength,"

Jeff Sica, president at Sica Wealth Management, agrees that Box's "underwhelming earnings" contributed to the delay, although he contends that the "recent volatility in the market" is also a factor.

As Box continues to drag its feet, the cloud storage space is heating up. Earlier this year, Google announced that it would offer customers two terabytes of free storage for one year and Amazon charges as low as 1 cent a month per GB, or $120 a year, for infrequently accessed storage. Finally, Microsoft is also targeting Box's customers with OneDrive, its cheaply priced file-storage service.

Related: Box CEO Aaron Levie: Microsoft Doesn't Have the DNA to Keep Up