As Box's IPO looms, so do its challenges

The share price for its long-awaited IPO is expected to be set late Thursday, with its debut on the New York Stock Exchange slated for Friday morning. Some 12.5 million shares of Class A common stock are expected to be made available at a generally cited price of $11 to $13 each, though word on the street suggests it will be higher.

"There are two things to take into consideration," said John Fitzgibbon Jr., owner and publisher of IPOScoop.com. "There's the company itself, or the 'steak.' Then there's the 'sizzle': the IPO.

"It started out slow, but now I hear it's sizzling," Fitzgibbon said. "It's expected to be priced above range and to start trading above that. For the tech sector, this is a gift from the heavens."

Founded in 2005, Box offers a cloud-based platform for data storage, file sharing and collaboration. It offers both free and paid versions of its service, with varying levels of storage space and administrative control. Today, more than 32 million people and 275,000 companies are among its users, the company says, including roughly half of the Fortune 500.

"The document collaboration landscape is in the midst of a major shift toward the cloud and full mobile support," said Rob Koplowitz, a principal analyst with Forrester Research. "The first and most compelling evidence of that is workers demanding easy, pervasive access to the content they need, when they need it, on any device."

One result of that demand has been the considerable attention that has come to be focused on cloud storage and "file sync and share" solutions, he pointed out. Box has already benefitted from that early demand.

But the road to its IPO has not been easy. Soon after it filed to go public last March, the market went sour on cloud-based stocks, creating an unfavorable climate for Box to list its shares. It canceled its plans and focused instead on fresh fundraising.

The market looks better today, but Box by no means has the stage to itself. Google, Microsoft, Dropbox, EMC, Citrix and other vendors are all playing in this arena, and the collective effect is driving down prices.

Differentiation will be critical. "The promise of content in the cloud is much broader and deeper than just storage and sync and share," Koplowitz said. "A true cloud content platform offers tremendous opportunity to redefine the role of content in all aspects of business."

That, in turn, will require a robust development and integration platform and a large partner ecosystem -- both goals Box has been working towards.

Looking ahead, the company's real challenge, Koplowitz said, is whether Box can continue to add customers in a competitive market, while driving up revenue per seat by monetizing its broader platform and emerging vertical capabilities.

Box's numerous competitors and considerable spending on marketing and data centers rank high among investors' concerns, agreed Kathleen Smith, a principal with IPO ETF manager Renaissance Capital.

"They have got a lot of customers, but they spend a lot to get them," she said. "The losses are high. The trick is for investors to see that spending as being worth it."

Box already offers features to distinguish its platform from those of its competitors, she added; now, "they also need to distinguish themselves with profits."

Time will tell whether that happens.

In the meantime, Friday will probably be "a wild trading day with huge volumes," Fitzgibbon predicted. "Maybe twice the shares being offered will trade."

There could also be a broader impact.

"All you need is a front-line company to really pop in an IPO market and you've got the floodgates opening up," he said. "Everybody's going to be running down the street in their underwear afterwards."