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Box, Fresh From Activist Win, Says Analysts Underestimate Growth

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(Bloomberg) -- Box Inc., the cloud software vendor that last month fended off an alternate board slate from activist investor Starboard Value LP, said analysts are underestimating future revenue growth.

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The company projected sales growth of 12% to 16% in the 2024 fiscal year, above the 11% average estimate of analysts polled by Bloomberg. “Imagine that we want to be on the higher end of that,” Box Chief Executive Officer and Co-founder Aaron Levie, said in an interview. The analysts also expect 11% growth for the next two years.

“I’m sure some analysts have a touch of conservatism and some just haven’t updated their models because they’re waiting to see what we deliver,” Levie said.

Box has been broadening its business from a seller of cloud software that synchronizes and shares files, competing with Microsoft Corp. and Dropbox Inc., to offering products that provide a full suite of content-management tasks, including securing files and getting electronic signatures on legal documents. It is focused on Box Suites, packages of several services, and 70% of deals worth more than $100,000 include Suites, up from 10% two years ago. Still, the company reported sales growth during the pandemic that slowed to an all-time low of 8% in the fiscal fourth quarter that ended Jan. 31, attracting concerns from Starboard.

The company said it’s now coming out of that trough and introducing new products Wednesday at its annual BoxWorks conference. An addition to the Box Shield security software is intended to combat ransomware attacks, which have been on the rise this year. The company is also improving compatibility with software from Microsoft, Zoom Video Communications Inc. and Salesforce’s Slack Technologies unit.

Starboard began exploring attempts to gain board seats earlier this year after Box’s sales growth hit a low point. Levie said Box wanted the activist to sign a non-disclosure agreement so the company could share its forecast that sales would increase from that point but Starboard declined. “If you just sort of said ‘oh wow, these numbers are going to keep going down” then you would come to the conclusion that maybe there needs to be some more significant action taken,” he said.

Starboard engaged in a months-long battle with Box, arguing the company underperformed peers and made a series of questionable decisions, including a $500 million investment by private equity giant KKR & Co. Investors last month rejected three Starboard-backed candidates for Box’s board, re-electing three incumbent directors. While Starboard and Box had different views on the future of the company — notably Starboard wanted the company to replace Levie or sell itself — the process helped Box hear a range of shareholder views and get critical feedback, he said.

“It was a totally unusual experience and not something that was like high on my bucket list, but it’s one where the company comes out of it better as an organization,” Levie said. “I have to be intellectually honest and say that activism serves a really important role in the capital markets.”

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