Dropbox Is A Value Trap

Summary

• Dropbox's stock-based compensation expenses are diluting shareholder value.
• The company's revenue growth on a per-share basis is meagre.
• Dropbox's new strategy has been unable to accelerate growth, during a time when the digitalization of the office accelerated at an unprecedented pace.
• Dropbox's free cash flows are financed by its extensive stock-based compensation expenses.

In this article, I will elaborate on why I deem Dropbox's (NASDAQ:DBX) stock to be a value trap: its mediocre revenue growth combined with generous stock-based compensation programmes imply it actually is a company with meagre growth on a per-share basis.

The New Dropbox

As most of you will know, Dropbox is a massive player in the cloud storage space. According to Datanyze, Dropbox is the second biggest file sharing service with a market share at approximately 20%, behind Google Drive, which has a 35% market share. Since Datanyze accumulates this data from the top 1 million Alexa websites, the data is skewed towards enterprises. Consumers might have different preferences.

Still, in general, Dropbox is one of the most prominent players in the file-sharing space amongst Google (GOOG) (GOOGL) and Microsoft (MSFT), and it seems like these competitors have grown faster than Dropbox over the last few years. That is logical since Google and Microsoft utilise their dominance in other market segments to expand Google Drive and One Drive, Dropbox cannot do this.

Yet, Dropbox is no longer just a file-sharing service; the company is planning to be more than only a cloud storage service. Dropbox has been investing in a Smart Workspace and released a massive overhaul of its platform called 'the New Dropbox' just last year. The New Dropbox is an ambitious approach from the company's management to transform Dropbox from a cloud storage provider into a versatile workplace environment: utilising technologies like HelloSign, Dropbox Transfer, Dropbox Passwords and Dropbox Vault.

The old Dropbox version was practically a simple folder accessible from anywhere with an internet connection. Now Dropbox is a versatile work environment; Dropbox wants to bring together cloud content and traditional files into one place - it wants to smoothen the workspace.

Dropbox: Huge dilution

The

Analyst’s Disclosure: I am/we are long AMZN. 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.