Updated Jan. 23, 2015 4:28 p.m. ET
Shares of Box Inc. surged 66% in their market debut on Friday, a sign of strong demand for a software company that has spent the past several months being lambasted for what critics said were its hefty marketing budget and unclear path to profitability.
The stock closed at $23.23, putting its market capitalization at roughly $2.7 billion, about 12% higher than the valuation investors TPG Growth and Coatue Management bought their stakes last July. On Thursday, Box set its IPO price at $14 a share.
While Box executives celebrated from the floor of the New York Stock Exchange, venture capitalists and tech entrepreneurs some 2,500 miles away also cheered the news, rethinking their valuations and prepping their own plans for IPOs.
Ive had two board members call me this morning, all excited, said Vineet Jain, chief executive of competing online-storage provider Egnyte Inc. It suddenly makes this category very exciting and puts a big spotlight on it.
Mr. Jain said he hopes to take his Mountain View, Calif., company public midway through 2016, provided he meets his target of becoming profitable a year from now. A long list of other cloud-computing startups, including Cloudera Inc., Hootsuite Media Inc. and DocuSign Inc., are expected to hold IPOs as soon as this year.
Matt McIlwain, managing director at Madrona Venture Group, said the strong demand for Box will encourage startups like Apptio Inc., a Bellevue, Wash., IT-management service now weighing its own IPO.
Thats the kind of company thats sitting there going, OK, what happened to Box will give me the confidence that the public markets are going to support the vision we have, Mr. McIlwain said.
The appetite for cloud-computing stocks dipped last spring, when a sudden market correction hit the valuations of marquee makers of business software, including Salesforce.com Inc. and Workday Inc. In just a few weeks, the average value of the 37 publicly traded companies tracked by Bessemer Venture Partners Cloud Computing Index fell 40%.
The correction occurred soon after Box filed for its IPO. The Los Altos, Calif., company postponed its IPO, and in the ensuing months it sought private-market funding. In that financing, Box agreed it would be required to issue more shares to private-equity firm TPG and hedge fund Coatue if it sold IPO shares below the $20 a share they paid.
Meantime, Box cut its sales and marketing costs to 97 cents for each dollar of revenue it made in the three months ended Oct. 31, from $1.57 a dollar of revenue at its peak.
Chief Executive Aaron Levie , a 30-year-old with a knack for showmanship, also spent time meeting with and educating potential investors on his plan to boost revenue. Box is developing more advanced tools tailored to industries like health care and retail that it can sell to its existing customer base and, over time, justify the high cost it pays to acquire them.
It seems like we have been able to convert some of the haters along the way, Mr. Levie said on Friday.
Boxs bankers, led by Morgan Stanley , Credit Suisse Group and J.P. Morgan , advised the company to bring the offering at an attractive pricethe IPO price was about five times expected 2015 salesand at a slow time of year, when Box didnt have to compete with a hotter name, people familiar with the matter said.
Some potential investors also were reassured when it was disclosed that Coatue agreed to buy more stock in the IPO, the people said.
A broader rebound in investor appetite for cloud-software makers also helped. Bessemers index is now just 8% below its February 2014 peak. Tech IPOs have done better recently with big-data firms Hortonworks Inc. and New Relic Inc. surging in their public debuts in December.
In the horse race between fear and greed, I think growth is back and people are looking for opportunities to invest in the cloud, said Jason Green, general partner at San Mateo, Calif.,-based Emergence Capital Partners.
Corrie Driebusch, Telis Demos and Shira Ovide contributed to this article.
Write to Douglas MacMillan at douglas.macmillan@wsj.com
Source: http://www.wsj.com/articles/box-opens-trading-well-above-ipo-price-of-14-a-share-1422026269
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