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DropBox: Much More To Come

Jul. 02, 2018 12:50 PM ETDropbox, Inc. (DBX), FPXBOX, FDN, IPO, PNQI, SKYY, SNAP, VTI, XLK3 Comments
ETF Global profile picture
ETF Global


  • Dropbox shares enjoyed a short-lived rally on speculations of short covering.
  • We think a much more likely reason was speculation ahead of DBX being added to different ETFs.
  • DBX’s dual share class makes it unlikely the stock will be added to many funds, but could find a home with the smaller ones but effects will be de minimis.

Three months after its IPO and Dropbox (NASDAQ:DBX) finally made headlines thanks to a strong rally that sent its share price soaring from $30 to $42 only to see it come crashing back last week to settle at $33.72 by the close on Friday. The fact that up until now most media coverage of DBX has generally been negative and the lack of any obvious catalyst led some to conclude that the sudden spike was nothing but short covering. Possible yet but we think a far more likely explanation has to do with DBX's three-month trade anniversary and its eligibility to be included in exchange-traded funds.

All passive ETFs have a benchmark that is built around a series of rules governing things like stock selection and rebalancing with many follow the same basic template governing how IPOs are added to the benchmark. Three months is typically the minimum amount of time a stock needs to be publicly traded before it can be added in addition to being traded on an exchange and meeting certain liquidity conditions. With a market cap over $13 billion and 400+ million shares outstanding, DBX easily checked off all those boxes and since many funds use the end of a quarter as their reconstitution date, the stock should've made the roster at any number of ETFs. Note that we said it "should've" because the percentage of its market cap held by ETFs is well below what we would expect for a stock of this size and reputation.

Thanks to years spent building relationships with custodians, we have access to the daily constitution files for all equity ETFs in the U.S. which means not only can we track both changes in portfolio holdings on a daily basis and use that holdings data to track ETF ownership of individual securities. This

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Comments (3)

I’m a Dropbox fan as a consumer but FYI - a Harvard Business Review article was published recently that used metadata of file sharing amongst academics. This is proving wildly unpopular in my community.
borisb profile picture
Dropbox sells near 9x sales and may need innovation roll outs and a few on point quarters before any sustainable advance. That said they have sharp management and may grow faster then expected.
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