Thinking outside the Box

These products are Box’s attempts to expand the revenue stream flowing in from its existing clients through a “land-and-expand” sales strategy. Now that it provides services, to some extent or another, to 70% of the Fortune 500, it wants to increase the average contract value of these customers. The new services also have the effect of making Box’s products stickier, making it less likely that customers will leave the Box, Inc. Class A (BOX - Get Rating) platform in the future.

Box shares are also currently cheap, especially for a software-as-a-service (SaaS) stock. Based on its updated guidance for the full fiscal year, Box, Inc. Class A (BOX - Get Rating) sells at a price-to-sales ratio of about 3.7, while other higher growth SaaS names sell for closer to 20 times sales. With the company’s strong free cash flow growth and a gross margin over 70%, there is definite potential for shares to pop if the company stops lowering its guidance and shows there is high demand for these new products. Until that time, I’ll be watching from the sidelines.