by Ian Harvey
August 11, 2019
Box Inc (NYSE: BOX) rallied more than 12% after it was revealed in a 13D filing Tuesday afternoon that activist investor Starboard Value held a 7.5% stake in the company. And the share price continues to move upwards.
And, “Cut-To-The-Chase” Members made 365% potential profit with an Option Call.
A NICE POTENTIAL PROFIT FOR THE WEEK!
Box Inc (NYSE:BOX) rallied 11.8% to $16.67 last Wednesday, up to $17.14 on Thursday, and $17.41 Friday - aiming to take out its 50-day moving average for the first time since mid-May. Sparking the rally was news that activist hedge fund Starboard Value had taken a 7.5% stake in the cloud concern.
It's not clear yet what Starboard plans to propose at Box. But its stock has dropped more than 10 percent this year amid analyst downgrades and shareholder lawsuits over its recent quarterly reports.
That is likely to bring significant proposals for change from Starboard.
Box Inc issued the following statement about the situation: "While we do not comment on interactions with our investors, Box is committed to maintaining an active and engaged dialogue with stockholders. The board of directors and management team are focused on delivering growth and profitability to drive long-term stockholder value as we continue to pioneer the cloud content management market."
The investment makes Starboard the third-largest shareholder in Box Inc, after Vanguard and BlackRock. Starboard also has ownership stakes in Marvell Technology Group Ltd. and Symantec Corp.
Why Starboard bought into Box Inc…..
While Box Inc has managed to grow its sales at a robust rate over the years, the company still reports a generally accepted accounting principles loss. It has increased its sales from $400 million in 2017 to $608 million in 2019. Analysts expect its sales to increase 13.6% to $691 million in 2020 and 12.4% to $776.33 million in 2021.
In comparison, analysts expect the company’s net margin to improve from -21.2% in 2020 to -17.3% to 2021 and -9.7% in 2022. One of the reasons for Starboard’s investment in Box could be that it wants to focus on improving the company’s bottom line.
Starboard has stated that it believes Box Inc stock is undervalued at its current price and provides an “attractive investment opportunity.”
Starboard has not yet come up with any detailed plan or proposals regarding changes it wants to see but intends to engage with Box's management team and board of directors. Those talks could potentially include a sale of the company or other efforts to maximize shareholder value, such as "changes to the capitalization." Like many tech companies, Box has a dual-class structure that gives insiders outsize voting power.
Why the Initial Call Trade on Box?
Cloud-based content management platform Box Inc (NYSE: BOX) is gaining small but noticeable traction in its business model. The company reported on the second quarter of its fiscal 2020 year on Aug. 28, and notably, Box recorded slight improvements in its perennial quarterly losses -- in both reported and adjusted number terms.
Box is a company that offers cloud content management and file sharing services for companies. It was founded by Aaron Levie and Dylan Smith in 2004. Levie is the current CEO of the company and Smith is the CFO.
As Box's product line matures and it reaches critical mass with recurring customer revenue, its red ink is slightly shrinking.
CFO Dylan Smith said…..
“In Q2, we continued to see our business model and improved efficiencies drive leverage across the business. Sales and marketing expenses in the quarter were $70.4 million, representing 41% of revenue -- an improvement from 45% in the prior year. Looking ahead, we expect to generate additional leverage in sales and marketing, as more of our revenue comes from renewals and up-sells, which are more profitable, and as we simplify our product offerings and standardize our sales motion to achieve more consistent execution globally.
Next, research and development expenses were $34.4 million, or 20% of revenue; flat with a year ago, even as we significantly enhanced our cloud content management product offerings, including the general availability of Box Relay and the continued development of Box Shield. Our general and administrative costs were $17.7 million, or 10% of revenue, compared to 12% in Q2 of last year. We expect to drive continued leverage in G&A, as we benefit from greater operational excellence and scale.”
Box is currently working on enriching cloud content management and AI platforms. It has made some notable partnerships with Apple and Microsoft.
The company’s rich technology partner ecosystem will continue to be a strong driving force behind growth.
For the third quarter of fiscal 2020, Box expects revenues between $174 million and $175 million. The Zacks Consensus Estimate for the same is pegged at $174.6million. On a non-GAAP basis, the company projects the bottom line in the range of (1) cent to breakeven. The corresponding Zacks Consensus Estimate is pegged at a loss of 1 cent per share. GAAP loss per share is expected within 28-27 cents.
Therefore, advising members to consider buying this.....
Option trade: Buy the BOX SEP 20 17.000 CALL at approximately $0.20.
YOU NEED TO BE IN TO PROFIT!
Moving Forward for Box Inc…..
The enterprise-software company was caught up in the overall tech sector sell-off early in the month, then finished August with volatile price swings after it reported earnings on August 28. It all added up to a down month, with the stock actually finishing August below the lows set in last December's epic market sell-off.
However, in early September, things have reversed in a big way, as activist investor Starboard Ventures took a large stake in the company.
GREED CAN BE THE UNDOING OF A GOOD PROFIT!
Where to Now?
On September 3, activist investor Starboard Value disclosed a 7.5% stake in Box. Its disclosure showed Starboard had purchased shares throughout the month, beginning on July 31 and continuing through August 30. The news has sent Box shares back up above where they were at the beginning of August, so the 11.5% drop has been erased.
Starboard's disclosures said the company believes shares are undervalued, yet many think that the activist will try to force a sale of the company to another large cloud company. Either way, prospects for the stock have brightened since the end of August.
Starboard is an activist investor that typically pushes for big changes in companies that it believes is undervalued.
PATIENCE PAYS OFF!
What Can You Do?
Based on Starboard's reputation in helping companies move forward positively; which should be beneficial to investors in the long run, it may be time to take a longer expiring call option trade on Box Inc.
Therefore, if you agree with this scenario consider the following options trade…..
.....Buy the BOX MAR 20 2020 17.000 CALL at approximately $2.80.
If you are not a member and are interested in being part of this profitable action just CLICK HERE.
AS ALWAYS THE DECISION IS YOURS!
OR other memberships.....CLICK HERE......
An Important Note: That any suggestions for options trade considerations require investors/traders to use their own discretion as to when to enter or exit! As well, it is advisable to do further research and due diligence before executing your trade.
It is sometimes best to exit a trade, if there is already sufficient profit accrued, before an earnings report is presented. GREED can be the undoing of a nice profit!