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Why Dropbox's Growth Is Hurting It

Apr. 09, 2018 5:46 PM ETDropbox, Inc. (DBX)13 Comments
Philip Wang profile picture
Philip Wang


  • Dropbox is financially strong and has a massive user base.
  • However, it risks not fulfilling its potential due to its inability to fully monetize its user base.
  • Its other strategies are also limited in part due to this inability.

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On March 23, Dropbox (NASDAQ:DBX) made its debut on the U.S. stock market. Two weeks later, on April 6, the stock closed at $30.24 -- 44% above its initial offering. To put things in perspective, of the FAANG stocks, Apple (AAPL) (+2%) was the best performer during this period. In fact, it was the only company out of the five to be up for this period. Stretching this back to the start of the year, only Netflix (NFLX) and Amazon (AMZN) have achieved double digit returns, with the remaining three companies down for the year. However, despite Dropbox's fantastic performance during this admittedly short period, I don't believe the company is a good investment at present.

Financially Strong

As a company, Dropbox has many strengths. First and foremost, it is strong financially. The company's revenue has been increasing faster than its cost of revenue. While its revenue growth dropped slightly in 2017, it was still almost 6x the increase in the cost of revenue. Over the past three years, Dropbox's net loss has steadily decreased, from $326 million in 2015 to just $112 million in 2017. If this trend were to continue, Dropbox will be able to post a net profit in the near future.

Source: Figures obtained from DBX Form S-1

Additionally, the company turned free cash flow, or FCF, positive in 2016 (or 2017, depending on which metric you look at). This indicates the company has sufficient cash left over to continue to grow its business. This positive FCF was in

This article was written by

Philip Wang profile picture
My aim is to build a financial portfolio which will enable me to become financially independent. While I have a keen interest in the financial markets, and am constantly seeking to learn more about various sectors, this means I tend to gravitate towards dividend stocks as they will provide me with a steady stream of income to achieve my goal of becoming financially independent.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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