Why Box’s Timing for an IPO is Just Right

Aaron Levie, CEO of the cloud sharing service Box at company headquarters in Los Altos, Calif., September 10, 2013. Peter Earl McCollough for Wired

After postponing its initial public offering last spring, the cloud storage startup Box is finally ready for its debut.

On Friday, Box kicked off its IPO roadshow and amended its documents, pricing shares at $11 to $13. At the middle of that range, Box would be valued at $1.43 billion, substantially less than the $2.4 billion valuation Box received after raising $150 million this summer. And yet, despite the modest valuation, analysts seem to agree that Box would be wise to act fast before market and competitive forces further threaten its valuation.

A storage company at its core, Box operates in a market that has largely become commoditized in the last few years, as competitors both large and small have flooded the space. “The storage, itself, is rapidly approaching a zero dollar value,” says Tyler Shields, a senior Forrester analyst.

Now, rather than simply battling over the storage of the world’s data, Box, Dropbox, Microsoft, Google, and other competitors are going after markets with higher margins, including the management and protection of that data. “There are bigger players than box sniffing at that market,” Shields says. “Going public is the smartest thing to do before others get competitive in that space.”

That said, Shields also believes Box’s leadership was wise to postpone the IPO when they did. Last spring, not only was the market for tech IPOs lackluster, but Box had internal problems, including a sky-high burn rate. “They’ve spent the last year attempting to fix that magic number,” Shields says.

As Box has reined in spending on sales and marketing, the tech IPO market has simultaneously improved, with companies like Hortonworks, LendingClub, and New Relic all having successful debuts in recent months.

“They fixed the magic number, and the market’s on the rise,” Shields says. “When you’re sitting at the top of the mountain, you IPO.”

Still, the task ahead of Box will be to prove to investors that it can continue to lower costs, while showcasing the dominance of its other features, including collaboration and security. “It’ll be about whether they can become a true content creation, management, and security play that competes with the likes of Microsoft and Google,” Shields says.

If successful, he believes Box’s debut could open the floodgates for more tech companies this year. “I think the Box IPO is going to break the seal for more tech IPOs in 2015,” he says. “Part of it has to do with the acceptance of cloud storage of data. It’s changing how businesses operate, which makes the market really ripe for innovation.”