The Ratings Game: Box shares rise as new products make case for $1 billion revenue model

Box Inc. shares rose Friday and were on track for their highest close in four months after the cloud enterprise software company said its rollout of new products and partnerships puts it on track to reach $1 billion in annual revenue in four years.

Box

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 shares rose 4.9% to $20.20 on four times the 52-week average trading volume following a meeting with analysts late Thursday, in which the company outlined its product expansion and customer retention strategy. Shares, while still below their stellar 2015 IPO levels, were headed for their best close since June 1, and are up nearly 46% for the year, compared with the S&P 500 index’s

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 14% rise.

At the company’s BoxWorks 2017 conference on Thursday, Box co-founder and Chief Financial Officer Dylan Smith said he not only expects the company to report its first profitable quarter on an unadjusted basis in fiscal 2019, but reach its goal of $1 billion in annual revenue by its third quarter, ending in October, of fiscal 2021. That’s one quarter earlier than forecast at BoxWorks a year ago.

In fiscal 2017, Box reported revenue of $398.6 million, and analysts expect revenue of $505.6 million in this fiscal year ending in January 2018, according to FactSet.

A slew of new product releases is expected to help Box achieve that billion-dollar goal. The company touted its Box Skills machine learning tool, which uses elements of IBM’s

IBM, +0.16%

 Watson, Microsoft Corp.’s

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 Azure, and Alphabet Inc.’s

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 Google Cloud to sort and tag large caches of audio, video and image files automatically.

The company also showed off Box Graph, its content management tool that tracks built-in permissions, security and compliance of an organization’s cloud content that is loaded up on Box. All told, the company is making a push to grab its share of the estimated $45 billion cloud content management market.

Also read: Box CEO Aaron Levie: Artificial intelligence to revolutionize cloud computing

Stephanie Carullo, Box’s recently appointed chief operating officer, said growing average contract values, or ACV, driven by new products and increasing retention of customers was also key to achieving the billion-dollar sales goal. At the presentation, Carullo said that customers who already had huge amounts of content at Box, but needed better ways of manipulating and accessing that content, were driving product development.

“There is no shortage of demand on their side,” Carullo said. “It’s really us taking advantage of this opportunity right now, and its one of the reasons I was so attracted to coming to Box.”

JMP Securities analyst Greg McDowell, who has an “outperform” rating and a $22 price target on the stock, said he was encouraged by how Box was executing with its new product expansion and strategy.

“I think Box is demonstrating meaningful progress with its strategy,” McDowell said in emailed comments. “It is optimizing the business to get to a billion dollars in revenue and I like what I am seeing.”

Raymond James analyst Brian Peterson reiterated his “outperform” rating on the stock with a $26 price target. He noted:

Post meeting, we have more conviction than ever in the company’s strategic positioning and ability to deliver on its long-term growth/margin projections, which look quite conservative to us. Whether its impressive adoption of ACV enhancing products, expanded seat-level pricing, pulling forward the long-term growth targets or improved sales efficiency, we find it hard to believe that investors would come away from the event with anything but an incrementally bullish stance.

Of the 12 analysts that cover Box, 10 have “overweight” or “buy” ratings and two have “hold” ratings, with an average price target of $24, according to FactSet data.