On Friday, Box (http://www.nasdaq.com/symbol/box) went public and watched its stock price soar to almost $24/share (at one point it was above $24) – a 66% increase from the initial offering price of $14. Many questions surrounded Box after filing its S-1; primarily around the huge cost to acquire users and the large losses it consistently was incurring. However, over the past several months, overhead and cost to acquire metrics came down – giving investors confidence that Box was a good investment. Whether Box ultimately is a long-term success remains to be seen.
The space is crowded and some of the competitors are companies like Google and Microsoft. This certainly leaves some investors skeptical of the upside of Box, but if Friday was any indication, there are plenty of investors willing to take on the risk. Some would argue this also opens the door for Dropbox to move forward with an IPO. There have been rumors of an acquisition, but certainly the successful first day for Box was a good sign for Dropbox.
The next several months will a trying time for Box employees. They will watch the stock fluctuate up and down with no ability to sell shares. Twitter employees saw the value of their shares increase to $74/share before they were able to sell, only to watch them drop below 50% of that value before they could do anything.
Once the window opens, Box employees will begin, at least in part, to dump their shares, which may cause a dip in the price at that point. There will be huge financial decisions made around investing (almost every advisor will tell them to diversify) – some of the Box employees will sell and decide to invest that money differently or just spend it all (don’t do that!!) and many who are “bullish” on Box will sit tight and ride the rollercoaster.
Regardless of the exact decisions that are made, there are opportunities to make them far more valuable. With capital gains rates still significantly lower than ordinary income rates – a decision to exercise and/or sell could be very costly if not done correctly.
For example, if 10,000 shares were sold at $23 per share with a gain of $20 per share – the tax on the gain of $200,000 could be over 50% for most Box employees who live in California. If those same shares were sold at long-term rates it could reduce the tax by almost 20% – a savings of almost $40,000 in this example. There are also planning opportunities for stock options – regarding AMT and long-term rates being leveraged.
Congratulations to Box – let’s hope for many more successful IPO’s in 2015!