See our client testimonials. Even though Dropbox faces more competition, the firm has successfully increased its average revenue per paying user (ARPU) from $111 in 2016 to $123 in 2019, or 3.6% compounded annually. Dropbox lets anyone upload and transfer files to the cloud, and share them with anyone. WebDrive has a share of 13.13% in the market. Figure 13: Implied Acquisition Prices to Create Value. 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. See all adjustments to Dropbox’s valuation here. Dropbox’s return on invested capital (ROIC) only tops Box, and at less than 4%, is well below the peer group’s market-cap-weighted average of 48%. Even in the most optimistic of scenarios, Dropbox is worth less than its current share price. Over the past three years, Dropbox states it generated $1.3 billion in free cash flow (FCF). Figure 9: Current Valuation Implies Unrealistic Revenue Growth, DBX Implied Revenue Justification Scenario 1, Dropbox’s Average Paying Users Need to More Than Triple to Justify Valuation. More broadly, Axler worries that Dropbox has saturated its cloud-storage market. 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 should link executive compensation with improving ROIC, which is directly correlated with creating shareholder value, so shareholders’ interests are properly aligned with executives’. Box ranks fifth with a 5% share. Avoid losses from using other firms’ data: “…many of the income-statement-relevant quantitative disclosures collected by NC do not appear to be easily identifiable in Compustat…” – page 13, “Core Earnings [calculated using New Constructs’ novel dataset] provides predictive power for various measures of one-year-ahead performance…that is incremental to their current-period counterparts.” – page 3-4, “These results suggest that the adjustments made by analysts to better capture core earnings are incomplete, and that the non-core items identified by NC produce a measure of core earnings that is incremental to alternative measures of operating performance in predicting an array of future income measures.”  – page 26, “An appropriate measure of accounting performance for purposes of forecasting future performance requires detailed analysis of all quantitative performance disclosures detailed in the annual report, including those reported only in the footnotes and in the MD&A.” – page 31. Leading media outlets regularly feature our research. Figures 12 and 13 show what I think Salesforce should pay for Dropbox to ensure it does not destroy shareholder value. The number of shares sold short has increased by 4% since last month. Each implied price is based on a ‘goal ROIC’ assuming different levels of revenue growth. Dropbox. While this stock has outperformed as a short, it could fall much further. Figure 13 shows the implied values for DBX assuming Salesforce wants to achieve an ROIC on the acquisition that equals 8% and is greater than its WACC. Dropbox cloud storage offers a range of plans that uniquely meet personal, small and large business plan needs – from 2 TB to unlimited space. The following funds receive an unattractive-or-worse rating and allocate significantly to DBX: Disclosure: David Trainer, Kyle Guske II, and Matt Shuler receive no compensation to write about any specific stock, sector, style, or theme. While core earnings[1] fell from -$58 million in 2018 to -$67 million in 2019, they rose to $17 million over the TTM. Dropbox hits 17% of market share with no associated content ecosystem. By using our services, you agree to our use of cookies, Dropbox: Cloud Storage to Backup, Sync, File Share, By purchasing this item, you are transacting with Google Payments and agreeing to the Google Payments. Dropbox lets anyone upload and transfer files to the cloud, and share them with anyone. The leading region in the Cloud Storage Industry was North America with a 42% cloud storage market share in 2017, followed by Europe with 28% cloud storage market share, Asia-Pacific with 25%, and the rest of the world with 5%. 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. Its 600 million users must account for a good chunk of the world’s knowledge workers, and now Dropbox is … Back up and sync docs, photos, videos, and other files to cloud storage and access them from any device, no matter where you are. Since I first placed it in the Danger Zone, DBX is down ~8% while the S&P 500 is up 24%. Dropbox has a share of 34.44% in the online file hosting industry. Figure 7: Dropbox’s Reported FCF vs. The stock will also likely sink should any of its competitors get more aggressive and offer more cloud storage at even lower prices so that Dropbox’s value proposition gets only weaker. Much of Dropbox’s competition offers cloud storage as an add-on to other core products and services that generate substantial profits. Should the firm have its first earnings miss, investors could get spooked and send shares lower. Dropbox Business starts at 2TB of storage for the Standard plan, but Advanced and Enterprise plans receive unlimited storage in the cloud. By comparison, Google Cloud’s revenue increased 43% YoY in 2Q20, and Microsoft grew its commercial cloud revenue by 39% YoY over the same period. Having been an early mover in the cloud-computing market in 2007, it's been able to sustain a sizable market share of this proliferating segment. For instance, Apple offers all of its customers 5 GB of free space through iCloud. One of the most notable adjustments was $20 million in operating leases. Google Drive is the next in line with 27.27% market share. Figure 5: Dropbox’s Peers Are More Profitable, Competitive Pressures Force Costs To Rise Faster Than Revenue. Despite focusing on workflow optimization and adding product features such as HelloSign, Passwords, and Spaces, Dropbox has been unable to reverse its declining growth rates. 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. With Dropbox as your backup solution, it’s easy to save your files to the cloud instead of using an external hard drive, flash drive, or any other remote storage device. Dropbox’s net operating profit after-tax (NOPAT) margin of 2% is well below the market-cap-weighted peer group average margin of 21%. 44 million paying users also translates to 2.5% of the global cloud storage market share. 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. At the end of January, the consensus estimate for Dropbox’s 2020 earnings was $0.57/share. Per Figure 2, the YoY growth in paying users has fallen from 35% in 2016 to just 10% TTM. : implied Acquisition Prices to create value would be accretive to Salesforce ’ balance! That Dropbox has grown revenue by 25 % compounded annually Since 2016 the field other words, executives are to. 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