Box, Inc. (BOX) and Fastly, Inc. (FSLY) are two prominent cloud computing service providers. Formerly known as Box.net, Inc., BOX’s Software-as-a-Service platform enables users to collaborate on content with internal and external parties. FSLY’s edge cloud platform enables developers to build, secure, and deliver digital experiences at the edge of the Internet, meaning for desktop computers, servers, and mobile computers.
Organizations worldwide are increasingly acknowledging the importance of digital transformation and the utility of cloud platforms. As such, the cloud content management and edge cloud products offered by BOX and FSLY continue to gain momentum as more enterprises prioritize digital transformation and continue to rely on private clouds as part of their IT infrastructure.
While BOX has returned 17.8% over the past year, FSLY has gained 416.7%. In terms of past three-month performance, FSLY is the clear winner with 52.1% gains versus BOX’s 7.6% returns. But which of these stocks is a better pick now? Let’s find out.
On February 3, BOX announced that it has entered an agreement to acquire E-Signature Innovator SignRequest. The company has also previewed an e-signature capability – Box Sign – which will be developed on SignRequest’s technology and integrated into Box. This should extend BOX’s vision for the content cloud and help its customers accelerate their digital transformations.
In January, BOX priced $315 million of convertible senior notes, due 2026. The company estimates that the offering’s proceeds be approximately $306.3 million, which it intends to use for working capital, repayment of debt, and potential acquisitions.
In November FSLY upgraded its Sydney and Melbourne points of presence (POPs), representing a major expansion of network capacity in Australia. FSLY bolstered its Melbourne Cup 2020 live stream, which helped the company witness a significant surge in streaming media and publishing, and general web traffic on its network.
Recent Financial Results
In the fiscal third quarter ended October 31, 2020, BOX’s total revenue increased 10.6% year-over-year to $196.0 million. The company’s gross profit grew 15.2% from its year-ago value to $139.19 million, while cash and cash equivalents rose 37.3% from the prior-year quarter to $275.79 million. BOX’s deferred revenue increased 9% year-over-year to $354.4 million over this period.
FSLY’s total revenue has increased 41.9% year-over-year to $70.64 million in the third quarter ended September 30, 2020, driven primarily by further adoption of the company’s modern edge platform. Its non-GAAP gross margin rose 370 basis points from the year-ago value to 59.8%. The company’s total customer count increased to 2,047, up from 1,951 in the second quarter.
Expected Financial Performance
Analysts expect BOX’s revenue to increase 7.1% in the current quarter and 10.4% in the current year. BOX’s EPS is expected to grow 142.9% in the current quarter and 2100% in the current year. Moreover, its EPS is expected to grow at a rate of 8% per annum over the next five years.
In comparison, analysts expect FSLY’s revenue to increase 34.4% in the current quarter and 30.7% in the current year. The company’s EPS is expected to decline in the current quarter and the current year. However, FSLY’s EPS is expected to grow at a rate of 30% per annum over the next five years.
BOX’s trailing-12-month revenue is more than two times FSLY’s. In fact, BOX is more profitable, with a gross profit margin of 70.5% versus FSLY’s 58.2%.
And BOX’s levered free cash flow of 26.4% compares favorably with FSLY’s negative returns.
In terms of trailing-12-month price/sales, FSLY is currently trading at 41.33x, which is significantly higher than BOX’s 3.70x. Its trailing-12-month EV/Sales of 46.05x is also significantly higher than BOX’s 4.02x.
So, BOX is the more affordable stock.
While BOX has an overall rating of A, which equates to Strong Buy in our proprietary POWR Ratings system, FSLY has an overall rating of F, which translates to Strong Sell. The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.
BOX has a Growth Grade of B, which is consistent with its expected growth in earnings and revenues. In comparison, FSLY has a Growth Grade of C.
In terms of Value Grade, BOX has an A, consistent with its lower-than-industry PEG ratio. FSLY’s Value Grade of F is reflective of its higher-than-industry price-to-book ratio.
BOX has a grade of B for Quality, indicating that it is more profitable than FSLY, which has a grade of C.
Also, of the 81 stocks in the Technology – Services industry, BOX is ranked #4 and FSLY is ranked #76.
While FSLY’s record-level network traffic and newly launched serverless edge computing service grabbed much attention last year, we think its lofty valuation and weaker financials make it a riskier investment compared to BOX. BOX’s much lower relative valuation and stronger financials should help the stock perform better in the long run.
Our research shows that the odds of success increase if one bets on stocks with an Overall POWR Rating of Buy or Strong Buy. Click here to learn about the other top-rated stocks in the Technology – Services industry.
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BOX shares were trading at $18.67 per share on Wednesday morning, up $0.52 (+2.87%). Year-to-date, BOX has gained 3.43%, versus a 4.15% rise in the benchmark S&P 500 index during the same period.
About the Author: Imon Ghosh
Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization. More...
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