Must-know: Why Box Inc.’s valuation has increased so rapidly

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A look at Box Inc’s competition and ownership structure

Box Inc. is an enterprise cloud storage provider, and it plans to come up with a initial public offering to raise up to $250 million. In the previous articles of this series, we discussed the competition Box Inc. faces in the cloud storage market against bigger players such as Google (GOOG), Microsoft (MSFT), and Amazon (AMZN) and comparatively smaller players such as Salesforce.com (CRM), Workday (WDAY), and Dropbox. We also took a look at the ownership structure of the company by various venture capitalists and its founders. Here, we’ll look at the valuation structure of the company and how its valuation has changed over time.

Box Inc. Fair Valuation

Box Inc.’s valuation has dramatically increased over time

As per the above graph, Box Inc.’s deemed fair value of common stock has consistently increased. In the last year, its value has gone up from $4.6 per share to $14.1 per share. The company values its common stock using the income approach and the market-comparable approach.

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According to the company’s S-1 filings, “The income approach estimates value based on the expectation of future cash flows that a company will generate—such as cash earnings, cost savings, tax deductions, and the proceeds from disposition. These future cash flows are discounted to their present values using a discount rate derived from an analysis of the cost of capital of comparable publicly traded companies in our industry or similar lines of business as of each valuation date and is adjusted to reflect the risks inherent in our cash flows. In addition, we also considered an appropriate discount adjustment to recognize the lack of marketability due to being a private company.”

The company also explains, “The market comparable approach estimates value based on a comparison of the subject company to comparable public companies in a similar line of business. To determine our peer group of companies, we considered public enterprise cloud-based application providers and selected those that are similar to us in size, stage of life cycle, and financial leverage. From the comparable companies, a representative market value multiple is determined which is applied to the subject company’s operating results to estimate the value of the subject company.”

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