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Dropbox: High Bar Ahead Of Earnings, But I Stay Bullish

May 05, 2020 9:13 AM ETDropbox, Inc. (DBX)7 Comments


  • The bar has been set high for Dropbox and its stock ahead of the company's 1Q20 earnings day.
  • I expect the company to have done quite well, assuming higher demand for storage capacity and productivity solutions during the COVID-19 crisis.
  • Valuations have come down sharply over the past year, even if the stock remains on a run since the market peaked in February.
  • Dropbox is a buy due to (1) the predictability of the SaaS model, (2) revenue growth and margin expansion prospects and (3) its reasonable valuation.
  • Looking for a helping hand in the market? Members of Storm-Resistant Growth get exclusive ideas and guidance to navigate any climate. Get started today »

Earnings day has come for cloud service provider Dropbox (NASDAQ:DBX). On May 7, the San Francisco-based company is expected to deliver $451.6 million in revenues for a quarter that will likely benefit from the stay-at-home economy. The implied 17% YOY top line increase would be roughly on par with the growth rate of the past few quarters. Adjusted EPS is estimated to land at $0.14, quite a bit higher than last year's ten cents delivered in the first quarter.

While I believe that Dropbox will, in fact, report strong results in the first period of 2020, the bar has been set high. First, 4Q19 seems to have marked a bottom line inflection point, and the company will be pressed to maintain optimism towards margin expansion and cash flow generation. Second, DBX remains a long-term underperfoming stock since the 2018 IPO, but shares have been beating the broad market by more than 20 percentage points since the S&P 500's (SPY) all-time highs of February 19th. Momentum will now be put to the test.

I believe that Dropbox will, in fact, report strong results in the first period of 2020.

(Image Credit: Computer World)

What to look for in Dropbox's earnings release

For starters, I will be looking to fill in the missing information on the graph below: paying user count and ARPU (i.e., per-unit revenue). The trend has been highly favorable lately as Dropbox continues to convert free into monetized customers, and as the transition from document storage and sharing to office productivity and collaboration (e.g., Dropbox Spaces) continues to add value to the platform.

Assuming higher demand for storage capacity and document management functionality in a period when office workers were forced to telecommute, growth in paid users could set records in 1Q20. Although the overlap is not perfect, the impressive increase of 16% in Microsoft's (MSFT) productivity and business process revenues may have

ChartData by YCharts

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This article was written by

DM Martins Research profile picture
Tracking Economic Inflection Points To Guide Your Asset Allocation Strategy

Daniel Martins is a Napa, California-based analyst and founder of independent research firm DM Martins Research. The firm's work is centered around building more efficient, easily replicable portfolios that are properly risk-balanced for growth with less downside risk.

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Daniel is the founder and portfolio manager at DM Martins Capital Management LLC. He is a former equity research professional at FBR Capital Markets and Telsey Advisory in New York City and finance analyst at macro hedge fund Bridgewater Associates, where he developed most of his investment management skills earlier in his career. Daniel is also an equity research instructor for Wall Street Prep.

He holds an MBA in Financial Instruments and Markets from New York University's Stern School of Business.

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On Seeking Alpha, DM Martins Research partners with EPB Macro Research, and has collaborated with Risk Research, Inc.

DM Martins Research also manages a small team of writers and editors who publish content on several TheStreet.com channels, including Apple Maven (thestreet.com/apple) and Wall Street Memes (thestreet.com/memestocks).

Analyst’s Disclosure: I am/we are long DBX, MSFT, CRM. 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.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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