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Shares in Box Soar on Market Debut

Though some critics have recently been harsh on Box, a popular cloud storage service, due to a large marketing budget and an unsure route to profits, the shares in the company grew by 66% in their January market debut. It was something that silenced critics, showing that there’s still interest in the company.

“It seems like we have been able to convert some of the haters along the way,” said Aaron Levie, Chief Executive of Box.

At end of play, stock closed at $23.23 and market capitalisation was therefore valued at around $2.7 billion. This made the valuation 12% higher than the stakes that TPG Growth and Coatue Management, a pair of investors, paid back in July last year. Following this, Box then set their IPO price to $14 share.

The news wasn’t just well received by Box. Other companies within the same market sector also celebrated as it demonstrates an interest in their services and shows that there is enough current demand for the industry.

“I’ve had two board members call me this morning, all excited,” said Vineet Jain, the chief executive of Egnyte, a competitor to Box in the cloud storage industry. “It suddenly makes this category very exciting and puts a big spotlight on it.”

Egnyte are hoping to take their country public around halfway through 2016, providing they meet their target to become profitable. Other companies are also looking to follows suit and hold IPOs in the near future, including Hootsuite, Cloudera and DocuSign.

There was concern last year when makers of business software, including Salesforce and Workday, were hit by market corrections in their value. Those 37 public companies tracked by Bessemer Venture Partners’ Cloud Computing Index saw their average value fall by 40%.

Following the news Box held off its IPO and began to seek private funding. The terms of the funding they achieved was that they would issue more shares to TPG and Coatue (a private equity firm and hedge fund respectively) if it sold IPO shares below the $20 they’d paid. Box then cut their marketing and sales costs to 97c for each dollar of revenue made.

During the market launch, Box’s Levie talked with potential investors about his plan to bring in revenue. He said that the company is working on advanced tools that are tailored to specific industries, like health care and retail, which it can sell to customers and hopefully justify the high marketing expenditure needed to capture them.

“In the horse race between fear and greed, I think growth is back and people are looking for opportunities to invest in the cloud,” said Jason Green, the general partner at Emergence Capital Partners.

Box was advised by their bankers to go public at a decent price, with their IPO being around five times their expected sales for 2015. Not only that, but it’s a slow time of year and Box didn’t have to compete with some larger and more popular firms.

It certainly seems like the cloud industry isn’t going anywhere any time soon. However, as with all industries, it’s sometimes very difficult to tell if there’s a bubble that will burst. Time will tell.


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