Box faces Make-or-Break Moment | Hacker News Reader

Box faces Make-or-Break Moment

nytimes.com

75 pointsmarban28 comments

Every time someone mentions Box, I find myself obligated to quote one of the funniest passages in recent tech history: the Risk Factors chapter from their S-1 IPO filing:

    ## Risks Related to Our Business and Our Industry ##

    ### We have a history of cumulative losses, and we do not  
    expect to be profitable for the foreseeable future. ###

    We have incurred significant losses in each period since
    our inception in 2005. We incurred net losses of $50.3
    million in our fiscal year ended December 31, 2011, $112.6
    million in our fiscal year ended January 31, 2013, and
    $168.6 million in our fiscal year ended January 31, 2014.
    As of January 31, 2014, we had an accumulated deficit of
    $361.2 million. These losses and accumulated deficit
    reflect the substantial investments we made to acquire new
    customers and develop our services. We intend to continue
    scaling our business to increase our number of users and
    paying organizations and to meet the increasingly complex
    needs of our customers. We have invested, and expect to
    continue to invest, in our sales and marketing
    organizations to sell our services around the world and in
    our development organization to deliver additional features
    and capabilities of our cloud services to address our
    customers’ evolving needs. We also expect to continue to
    make significant investments in our datacenter
    infrastructure and in our professional service organization
    as we focus on customer success. As a result of our
    continuing investments to scale our business in each of
    these areas, we do not expect to be profitable for the
    foreseeable future. Furthermore, to the extent we are
    successful in increasing our customer base, we will also
    incur increased losses due to upfront costs associated with
    acquiring new customers, particularly as a result of the
    limited free trial version of our service and the nature of 
    subscription revenue, which is generally recognized ratably
    over the term of the subscription period, which is
    typically one year, although we also offer our services for
    terms ranging between one month to three years or more. We
    cannot assure you that we will achieve profitability in the
    future or that, if we do become profitable, we will sustain
    profitability.

http://www.sec.gov/Archives/edgar/data/1372612/0001193125141...

That is pretty standard. It is is to give themselves a defense if their stock never goes anywhere and they go bankrupt. They will still get sued by some plaintiff lawyer but they will prevail with an "We never said we were going to make money." defense.

A more difficult challenge for them is differentiation amongst all the cloud storage providers (Box, S3, Dropbox, Drive, Etc.) variuos levels of API, various costs, and various features. They have some great customers, and one assumes that those customers will help them focus on the things they need to succeed, but at the end of the day you have to be able to serve their needs and pay to keep the lights on, if you can't well that would be the end of that.

The risks section of an S-1 will always focus upon the worst case outcomes; if they don't and those outcomes are realised, investors will sue.

Other recent S-1s have similar dire warnings, with almost identical language.

How many are running a third of a billion dollars in deficit?

saas companies are a little tricker to value. Acquiring customers for say 1/3 of the clv is a great deal for a saas business but will show up as big losses because the acquisition cost is paid out up front while the revenue is earned monthly over the account life.

see eg http://a16z.com/2014/05/13/understanding-saas-valuation-prim...

if those customers are sticky, box should do well for themselves; if not, they're in trouble

These are always funny. Read the Risks for the S-1 of 'Restoration Hardware'. It actually goes into (alludes) the CEO's predilection for jumping into the sack with fellow employees!

Isn't that just standard language for basically all S-1 filings?

The most recent one that comes to mind for me is New Relic's S-1 (http://www.sec.gov/Archives/edgar/data/1448056/0001193125144...):

> We have incurred net losses in each fiscal period since our inception, including net losses of $7.5 million, $22.5 million, and $40.2 million in the fiscal years ended March 31, 2012, 2013, and 2014, respectively, and $18.6 million and $19.4 million in the six months ended September 30, 2013 and 2014, respectively. We had an accumulated deficit of $100.8 million at September 30, 2014....

Seems more or less word for word the same to me

No, many companies that IPO are and have been profitable, so they don't need to warn investors that they've never made a penny and may never do so.

Thats hilarious. Why would anyone invest in them? I work at a very large institution that uses Box and I can tell you its no Dropbox

It's probably the same people who invested in GoDaddy. These are people who's investments I do not understand in the least!

The whole premise of the article is centered around a single quote from a Morningstar analyst. Does Box really face a make or break moment right now?

Maybe not right now, but soon. Box lost $167mm in FY2015 ($158mm in FY2014). They expect to lose $140mm in FY2016.

Their IPO only raised $175mm, so at this rate they will run out of money in FY2017 or shortly after. It's a mystery to me why anyone bought into their IPO, and I think their stock performance since then shows that they will not have an easy time raising additional money from public markets.

They spent too much to acquire their customers, and now they only have demanding and expensive customers. The poor economics of their business forced them to raise money on poor terms (which helps to explain their IPO), and now their options for raising additional capital are going to be increasingly sub-optimal.

This seems to be on par for tech journalism. Take a quote from some analyst, accept it as truth without doing any further research, and then write a story around it.

Seems on par for most mainstream journalism these days, tech or otherwise.

Maybe they are losing money because they have 1200 employees. Do they really need that many?

I work near their Los Altos office and I see a lot of Box employees (How do I know? They wear the Box tees,shirts hoodies, caps etc.) roaming around the San Antonio shopping center and surrounding areas (Which begs to question what am I doing outside the office? Ha! I have a large floor to ceiling window overlooking El Camino and the SA shopping center). I know it's totally anecdotal, but it looks like their employees have given up too. Do they really need 1200 employees?

What happens to all the data if a big cloud provider goes under? They must give their clients time to move the data, no?

They post about what an incredible journey it has been with you, their beloved user, in their unlimited-service-for-ever and that you will have 7 days to grab your data from their 10 MBit/s funnel before it is deleted forever.

See http://ourincrediblejourney.tumblr.com/ for some inspiration.

The cloud/butt is not a place to store your data without having everything backed up locally. Look at a random ToS, they all(?) can terminate your service in an instant for zero reasons.

It's sold to the highest bidder like everything else.

Not quite the same, but if you count Megaupload as a cloud storage provider, it's possible for data to be seized and held inaccessible for years. http://www.wired.co.uk/news/archive/2013-06/20/dotcom-data-d...

From what I understand, if a company truly goes into liquidation (as opposed to e.g. Chapter 11, which is like a state of emergency for businesses) it ceases to exist, so it cannot have any obligations (or, for that matter, possessions) anymore.

The trustee appointed to wind down the business will/should try and divide whatever is left as fair as possible.

What that means for intangibles such as "your data that is in their data center that is powered down because they didn't pay the bills" or even "that is on the disks that were repossessed by the company that leased them to them" will depend on lots of factors. Maybe some company turns up who wants to continue the business. Such a buyer likely will want to keep existing customers, and therefore will try and keep the data of the customers online.

Alternatively, if it is clear nobody wants to continue the business, and contracts do not put a price on losing customer data while in liquidation, why would the trustee spend money on keeping a data center running?

In practice, the answer to that question likely is "because subsequent lawsuits will cost more than keeping the data center running does".

Therefore, one can hope such companies do not truly go under but close down in more or less orderly fashion: they go into cheaper 11, find a 'partner' who buys their storage business and migrates the data into their centers, leaving an almost empty shell that can go reinvent itself, or linger for years on (for example, reading Wikipedia, SCO has been in such a zombie-like state for years)

Possibly, possibly not, depends on the circumstances. The real thing to remember is that Box, Dropbox etc. aren't a replacement for backups and if them shutting down without warning tomorrow means you lose data then you are Doing It Wrong.

> They must give their clients time to move the data, no?

And if they don't and the data is cut off (destroyed, etc), what recourse would the clients have?

they will give time, e.g Ubuntu One file services closed shop and gave some time and even free migration services to another provider.

This was because the company behind Ubuntu (Canonical) shut down the service, they didn't go under themselves.

If the cloud infrastrucure is Box's, and they cannot pay the maintenance fees anymore, I would start seriously worrying.

In a way, committing to a company whose main business is cloud storage gives you more guarantees they won't shut down the service out of the blue (since it's their only, or main, source of revenue), while committing to a big company with their eggs in more baskets (MS, Google) gives you more guarantees that if they shut down the service you'll be given some time to react.

Is there insurance coverage for this sort of thing?

"In case Company X goes under, Insurance Company Y will pay $Z to cover hosting costs for AA months so that customers can download their data"

backblaze is 5 bucks a month for unlimited. box is 6 or 7 bucks a month for 2 GB. why would anyone use box?

Yev from Backblaze here -> bit of a different use-case. Box isn't a backup service, and Backblaze isn't a syncing/sharing/collaboration service. But you're right, if they are paying to house their data somewhere, that gets expensive. We can charge so little because of our own infrastructure that we rolled out, but it's not designed for the type of stuff that they are doing. Though, I suppose if you design it right it could be.

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