Canaccord Remains Cautious On Box Following Q2 Print, Notes Company Several Quarters Away From Profitability

• Shares of Box have fallen 25 percent since its highs in June.<
• Richard Davis Jr. of Canaccord maintained a Hold rating with a lower price target following the Q2 print.
• Davis stated the "chief knock" against Box is its negative cash flow and the company is several quarters away from showing any kind of profit.

Box, Inc. BOX, a provider of cloud-based and mobile optimized Enterprise Content platform, reported its second-quarter results after Wednesday's market close. Shares gained over 3 percent immediately following the print, a move which was initially attributed to its narrower-than-expected quarterly loss.

Canaccord Genuity's Richard Davis Jr. commented in a note that the company introduced a "steady stream" of product improvements, partnerships and vertically-focused initiatives. As such, the analyst stated he has now "warmed up" to the name as the second quarter showed a "continued step in the right direction" as the company's subscriber additions and financial results were "generally strong."

However, Davis made it clear that he is not yet ready to recommend the stock. The analyst noted that the "chief knock" against Box is its "large" free cash flow losses, and the recent quarter "did little to allay those fears."

The company's free cash flow losses for the second quarter came in at $39.6 million, below the analyst's expectation of a $29.2 million loss. Meanwhile, revenue grew 43 percent year-over-year to $73.5 million while billings were up 45 percent year-over-year to $79.6 million.

The analyst said the company is still five to six quarters away towards showing "any kind" of profit as the company reiterated its expectations to achieve free cash flow profitability in the final quarter of 2017 with full-year free cash flow profitability the following year.

"If investors, for whatever reason, were to pivot towards the perceived safe havens (a move we don't necessarily expect, in fact we favor the odds of a Q4 growth rally), BOX would likely be a stock that underperforms," Davis concluded. "Our preference for now is to err on the side of caution."

Shares were maintained at Hold with a price target lowered to $18 from a previous $21.

Disclosure: At time of writing, the author had no position in the equities mentioned in this report.