See our client testimonials. Dropbox lets anyone upload and transfer files to the cloud, and share them with anyone. Dropbox stated in its 2Q20 earnings call that it is on a trajectory to achieve its long-term free cash flow target of $1 billion by 2024. Dropbox, a pioneer among cloud storage and syncing services, offers synced desktop folders for anywhere-access.Though it's comparatively pricey, unique tools like … One of our most used categories is Cloud Storage. However, the cost per user, or average operating expense per paying user (AOEPU) has risen even faster from $85 in 2016 to $99, or 5.2% compounded annually in 2019. Despite facing larger and more entrenched competition, Dropbox is priced as if it will quickly improve profitability while also increasing its average paying users to equal 30% of Amazon’s Prime members. Elite money managers, advisors and institutions have relied on us to lower risk and improve performance since 2004. Over half of Americans online have never used cloud storage service Figure 5: Dropbox’s Peers Are More Profitable, Competitive Pressures Force Costs To Rise Faster Than Revenue. 1.2 Market Analysis by Personal Cloud Storage, Public Cloud Storage, Private Cloud Storage, Hybrid Cloud Storage 1.3 Market Analysis by Enterprise, Government, Personal 1.4 Market Analysis by North America, Europe, China, Japan, Rest of the World 1.5 Market Dynamics 1.5.1 Market Opportunities 1.5.2 Market Risk 1.5.3 Market Driving Force. Dropbox has a share of 34.44% in the online file hosting industry. [1] My firm’s core earnings are a superior measure of profits, as demonstrated in Core Earnings: New Data & Evidence a paper by professors at Harvard Business School (HBS) & MIT Sloan. San Francisco, CA 94158, Cloud: Photo & Video Backup! Because Dropbox started as a small company, freemium provided a way for more people to try the product and thus enabled people to experience the superior services, therefore expanded their market share. Figure 6: AOEPU as a Percent of ARPU Since 2016. Even in the most optimistic of scenarios, Dropbox is worth less than its current share price. These days, fewer investors pay attention to fundamentals and the red flags buried in financial filings. Software Solution. Dropbox (DBX) is a pioneer of cloud storage. The cost of cloud storage depends on the amount of space you actually need. This report helps investors of all types see just how extreme the risk in DBX is based on: While Dropbox has grown revenue from $845 million in 2016 to $1.8 billion TTM, the firm’s year-over-year (YoY) revenue growth rate has fallen from 40% to 18%. Figure 13: Implied Acquisition Prices to Create Value. Google Drive is a file storage and synchronization service developed by Google. Decline of Dropbox . Most of Dropbox’s competition is more profitable too. Should the firm have its first earnings miss, investors could get spooked and send shares lower. Per Figure 8, Dropbox has grown revenue by 25% compounded annually since 2016. Dropbox lets anyone upload and transfer files to the cloud, and share them with anyone. Dropbox controls 21% of the cloud storage market, according to Datanyze, putting it in second place behind Google Drive (34%) and ahead of OneDrive (12%). I think potential acquirers would be better off leaving cloud storage to the firms that can offer cloud storage as a free add-on to their deeply integrated services, but stranger things have happened than firms being acquired at unnecessarily high premiums to their intrinsic value. Each implied price is based on a ‘goal ROIC’ assuming different levels of revenue growth. The Appendix details exactly how we stack up. Figure 2: Dropbox’s YoY Change in Paying Users Since 2016, Dropbox Has to Steal Users From Deeply Integrated Solution Providers. While this stock has outperformed as a short, it could fall much further. Competitors, DBX Implied User Growth Justification Scenario 1, Dropbox Has Significant Downside With More Realistic User Growth. Over the past three years the firm has incurred $1.1 billion in stock-based compensation expense. Cloud drive storage to save photos, music, docs, video! Hardware Solution On The Basis Of Product, The Private Cloud Storage Market Is Primarily Split Into. No other competitors claimed more than 4% of the field. While many cloud storage systems focus on collaborating on smaller files, Dropbox makes it easy for businesses to share large documents, or video files that might not be shareable on other cloud storage systems. More broadly, Axler worries that Dropbox has saturated its cloud-storage market. Dropbox’s share of the global cloud storage market has fallen from 4.4% in 2017 to 3.6% in 2019 as more competitors enter the space and existing competition ramped up storage options. This peer group includes Apple, Microsoft, Alphabet, Amazon, and Box. When I close the accounting loopholes, I find that over the past three years, Dropbox generated a cumulative $329 million in true FCF and that FCF is rapidly declining. Even if Dropbox can grow revenue by 14% compounded annually for five years and achieve a 4% NOPAT margin, the firm is worth less than $19/share. Jump forward to today, and the 2020 consensus estimate has risen to $0.77/share, despite underwhelming user growth during the shift to work-from-home. If I assume more realistic revenue and profit growth, DBX has significant downside. I optimistically assume that Salesforce can grow Dropbox’s revenue and NOPAT without spending any working capital or fixed assets beyond the original purchase price. In the second scenario, the estimated revenue growth rate for year one is 14% in years one through five. This adjustment represents 13% of Dropbox’s market cap. 20% of iCloud customers were paying users in 2018, the last time Apple shared that stat. See what HBS & MIT Sloan professors say in the paper: “…the NC dataset provides a novel opportunity to study the properties of non-operating items disclosed in 10-Ks, and to examine the extent to which the market impounds their implications.” – page 19, “Trading strategies that exploit cross-sectional differences in firms’ transitory earnings produce abnormal returns of 7-to-10% per year.” – page 1. The number of shares sold short has increased by 4% since last month. Acquisitions completed at these prices would be accretive to Salesforce’s shareholders. Dropbox Business starts at 2TB of storage for the Standard plan, but Advanced and Enterprise plans receive unlimited storage in the cloud. Dropbox’s share of the global cloud storage market has fallen from 4.4% in 2017 to 3.6% in 2019 as more competitors enter the space and existing competition ramped up storage options. Microsoft one drive is at 12.12%. I first warned about Dropbox prior to its IPO in March 2018, and again in September 2018 and August 2019. The key variables are the weighted average cost of capital (WACC) and ROIC for assessing different hurdle rates for a deal to create value. To justify its current price of $19/share, Dropbox must: See the math behind this reverse DCF scenario. However, upon closer look, Dropbox’s free cash flow fails to reflect the true economics of the business. You can see all the adjustments made to Dropbox’s balance sheet here. As investors focus more on fundamental research, research automation technology is needed to analyze all the critical financial details in financial filings as shown in the Harvard Business School and MIT Sloan paper, “Core Earnings: New Data and Evidence”. Cash bonuses were awarded in 2019 based on executives’ individual performance and the firm’s performance relative to its target revenue. Once you’ve downloaded the Dropbox app on your computer, simply drag and drop the files you’d like to back up into the Dropbox folder on your desktop. Dropbox makes moving between personal, business, and enterprise-level plans easy by transferring your account to the new plan without changing file configurations.Google Drive for Business plans start at 30GB of storage per user at the Basic level, while Business and Enterprise plans give users unlimited storage with some extra features. Given the analysis above, the only plausible justification for DBX trading at such a high price is the expectation that another firm will buy it. Back up and sync docs, photos, videos, and other files to cloud storage and access them from any device, no matter where you are. I think it is difficult to make a straight-faced argument that Dropbox can maintain that level of market share with a more expensive and less integrated product. Entrenched competition is well-positioned to take more market share, but the stock is priced for just the opposite. Figure 6 illustrates that AOEPU is rising as a percent of average revenue per user and remains a significant impediment to the profitably improvements implied by the stock price, as we’ll show later. Figure 12: Implied Acquisition Prices for Value-Neutral Deal. The following are the data based on 48,262 companies that use file hosting services of various companies, including Dropbox. With our CloudRail API Integration Solution we help developers to connect to various APIs much faster. Figure 11: DBX Has Large Downside Risk: DCF Valuation Scenario. True FCF. One of the most notable adjustments was $20 million in operating leases. Over the past three months, insiders have purchased 4 thousand shares and sold 99 thousand shares for a net effect of 95 thousands shares sold. footnotes) of hundreds of thousands of financial filings to unearth critical details. TOP COMPETITORS OF Dropbox IN Datanyze Universe . If Dropbox cannot outgrow the competition in such a favorable environment, will it ever? Box ranks fifth with a 5% share. Dropbox’s paying users, the primary source of revenue, are growing much more slowly too. Dropbox, Inc. With COVID-19-induced disruptions forcing most businesses to adapt their operations to be more remote friendly, Dropbox was in prime position to gain market share. This assumption is highly unlikely but allows us to create best-case scenarios that demonstrate how high expectations embedded in the current valuation are. Dropbox. Dropbox saw only a 16% YoY revenue increase in 2Q20 and a 17% YoY increase in 1H20. This scenario represents the minimum level of performance required not to destroy value. Often the largest risk to any bear thesis is what I call “stupid money risk”, which means an acquirer comes in and buys Dropbox at the current, or higher, share price despite the stock being overvalued. So users of those apps always hav… Its 600 million users must account for a good chunk of the world’s knowledge workers, and now Dropbox is … By dividing the implied revenue in 2027 of $5.6 billion by the firm’s 2Q20 ARPU of $126, I arrive at ~44 million implied paying users in 2027. Over the TTM, the firm’s true FCF is -$40 million compared to reported FCF of $400 million. Dropbox has generated negative economic earnings in each of the past four years. 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