Dropbox, a pioneer among cloud storage and syncing services, offers synced desktop folders for anywhere-access.Though it's comparatively pricey, unique tools like … Below are specifics on the adjustments I make based on Robo-Analyst findings in Dropbox’s 10-Qs and 10-K: Income Statement: I made $67 million of adjustments, with a net effect of removing $9 million in non-operating expenses (1% of revenue). See all adjustments to Dropbox’s valuation here. San Francisco, CA 94158, Cloud: Photo & Video Backup! 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. Over the past three years, Dropbox states it generated $1.3 billion in free cash flow (FCF). A new report by Unified API integration leader CloudRail shows that Dropbox leads the consumer cloud storage market with 63.8%, ahead of Google Drive, OneDrive and Box of all users choosing their service.. A newer version of this report is available: Cloud Storage Report 2017 CloudRail, a leader in API integration management solutions for app developers, released a new report analyzing … On the contrary, it is losing ground to the competition. Figure 7 shows that while the firm’s reported FCF is trending up, Dropbox’s true FCF is moving in the opposite direction. So users of those apps always hav… [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. Dropbox has beaten earnings in each of the past ten quarters. Having to charge users for services they can get free from competitors with whom they’ve already integrated puts Dropbox in a very poor competitive position. 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. Cloud storage isn’t just about uploading your files. Combining human expertise with NLP/ML/AI technologies (feat. Dropbox is popular with businesses of all sizes because it is one of the best tools for transferring large files. Dropbox lets anyone upload and transfer files to the cloud, and share them with anyone. In the first scenario, I use 14% revenue growth in year one and 11% in years two through five (vs. consensus estimates of 14% in 2020 and 11% in 2021). For this analysis, I chose Salesforce.com Inc. (CRM) as a potential acquirer of Dropbox since Dropbox already integrates with Salesforce’s cloud-based platform and such vertical integration would give Salesforce greater in-house services and access to Dropbox’s over 600 million registered users. Paper is a collaborative workspace that helps teams create and share early ideas. Since I first placed it in the Danger Zone, DBX is down ~8% while the S&P 500 is up 24%. Dropbox lets anyone upload and transfer files to the cloud, and share them with anyone. Dropbox has a share of 34.44% in the online file hosting industry. Dropbox lets anyone upload and transfer files to the cloud, and share them with anyone. Figures 12 and 13 show what I think Salesforce should pay for Dropbox to ensure it does not destroy shareholder value. Opinions expressed by Forbes Contributors are their own. Figure 12: Implied Acquisition Prices for Value-Neutral Deal. Sharing. 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. 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. 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. The COVID-19 pandemic has significantly changed how organizations work. 1800 Owens St While this stock has outperformed as a short, it could fall much further. Back UP your Photos & Videos Automatically!♻️. 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. © 2020 Forbes Media LLC. The report also revealed that cloud storage is overwhelmingly dominated by music, with about 90 percent of Apple, Amazon and Google cloud users storing music in the cloud. Dropbox’s paying users, the primary source of revenue, are growing much more slowly too. 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 use the higher estimates in scenario two to illustrate a best-case scenario where I assume Dropbox could grow revenue faster while being integrated within Salesforce’s existing business. Fiduciaries should avoid this week’s Danger Zone pick: Dropbox Inc. (DBX). 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. Dropbox not only has to convince customers not to use Apple’s convenient and competitively-priced service, but it also must convince them that Dropbox’s service is meaningfully better. This WFH Solution Provider Saw Market Share Decline During COVID. David is a distinguished investment strategist and corporate finance expert. New Constructs provides unrivaled insights into the fundamentals and valuation of private & public businesses. EY & Citi On The Importance Of Resilience And Innovation, Impact 50: Investors Seeking Profit — And Pushing For Change, Michigan Economic Development Corporation With Forbes Insights, Casey’s Stock Looks Expensive In the Long Run, Face Reality: Pit Yourself Against Nasdaq 100, Dow Jones Today: Stocks Erase Losses, Coronavirus Variant Vaccine Possible; Apple Thinking Of Apple Car, Apple’s Rumored EV Project Is A True Threat To Tesla’s Hype Machine, MDU Resources: Low Risk Bet On An Infrastructure Boom, Virus Stimulus Bill Mandates Pointless Pollution Study, Auto Retailer Drives Lower After Q3 Report, See the math behind this reverse DCF scenario, directly correlated with creating shareholder value, Competition deeply already integrated with target users, Doing the math: the stock price implies Dropbox can acquire 44 million paying users, equal to 30% of Amazon Prime members and 22% of Microsoft Office 365 subscribers, Grow revenue at 17% (vs. average consensus estimates from 2020 to 2022 of 12%) compounded annually over the next eight years, Immediately achieve a 7% (vs. Amazon’s TTM margin of 5%) NOPAT margin, Grow revenue at 11% (equal to 2021 consensus estimate) compounded annually over the next eight years, Immediately achieve a 4% NOPAT margin (double TTM margin of 2%), $864 million in operating leases (11% of market cap), $18 million in outstanding employee stock options (<1% of market cap), Deeply embedded competition with deeper pockets, Lack of significant and durable competitive advantages, Valuation implies massive paying user growth, PartnerSelect Smaller Companies Fund (MSSFX) – 2.7% allocation and unattractive rating, Catalyst Buyback Strategy Fund (BUYCX) – 2.6% allocation and very unattractive rating, Columbia Seligman Comm & Info Fund (SLMCX) – 2.0% allocation and unattractive rating, Columbia Seligman Global Technology Fund (SHGTX) – 2.0% allocation and unattractive rating. 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