How Box escaped the SaaS growth trap

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Box reported results for the first quarter of its fiscal 2023, which ended on April 30. Box missed on adjusted per-share profit, but it beat revenue expectations. The company's shares lost some ground.

You might wonder why we are digging into a company that had a quarter that appeared to be somewhat mixed in results and largely neutral from an investor perspective. Out of a period in which external investors took aim at its leadership over complaints about flagging growth, Box is now reaping the results of the work it did while out of favor with Wall Street.

The revenue expansion slowed to a single-digit percentage points. Since Box went through the activist wringer, other public software companies with similar growth rates have come under external pressure. This is a time when a company's revenue expansion has slowed, but its profitability has not scaled to keep investors content with its performance.

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Public software companies in the trap have to find a way to grow. It is similar to the position that many startups are in today, with growth expectations staying high as private-market investors are less interested in high-burn models. Keeping the growth coming while also paying attention to their cost structure is what startups have to do. It is a difficult path to navigate.

Box was able to manage it, though it took time. The company had $238 million worth of revenue in the first quarter, which was 18% higher than it had in the year-ago period. The upward trajectory is important.

Box grew its gross margins, operating income and net profit in its most recent quarter, but how did it get out of the growth trap? Let's talk about it. It's a lesson for public companies, but also one that will be important for startups as they navigate a more complex and demanding investment market for early-stage technology shares.