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Dropbox: Time To Double Down

Mar. 01, 2021 12:05 PM ETDropbox, Inc. (DBX) Stock28 Comments
Gary Alexander profile picture
Gary Alexander


  • Dropbox shares are looking more attractive than ever with the stock trading at just over ~4x forward revenue.
  • Though growth has slowed, Dropbox is steering admirable profit expansion through careful cost controls.
  • Dropbox is a sticky recurring revenue product that has continued to see gradual expansion among its customer base.
  • A new $1 billion stock repurchase plan, which covers more than 10% of Dropbox's current market cap, will also help put a floor under Dropbox's share price.
  • I do much more than just articles at Daily Tech Download: Members get access to model portfolios, regular updates, a chat room, and more. Get started today »

These days, as the market's enthusiasm toward highly-valued tech stocks continues to wane due to stretched valuations and rising rates, finding good deals in the software sector has been harder and harder to find. Last week's rout in tech stocks showcases the importance of rotating toward more value-oriented stocks that are less susceptible to a broader market downturn.

In that regard, Dropbox (NASDAQ:DBX) fits the bill perfectly, and it's a stock that I have doubled down on as valuations come more into focus. The popular file-sharing company may no longer be growing as quickly as it has in the past, but it has cemented the strength of its recurring revenue base, is continually rolling out new features and strengthening its platform, which is the leading paid consumer service for file storage.

Gains in Dropbox have trailed behind peer software companies over the past years. Year to date, the stock is flat; over the past twelve months, the stock is up only ~10%. Though no longer as exciting of a company as it was during its IPO (where it opened for trading at $29/share in 2018, and has fallen steadily since), I think Dropbox's steady subscription business plus its recent trend of dramatic margin gains will continue to find more favor among investors.

The chief appeal to Dropbox is its ultra-modest valuation. At current share prices near $22, Dropbox trades at a market cap of just $9.35 billion (less than the "decacorn" valuation that Dropbox enjoyed as a private VC-backed company), and after we net off the $1.12 billion of cash on its balance sheet, Dropbox's enterprise value is just $8.23 billion.

Meanwhile, Dropbox has guided to $2.095-$2.115 billion in revenue next year - which would put Dropbox's current valuation at just 4.1x EV/FY21 revenue. Valuations this low

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This article was written by

Gary Alexander profile picture
With combined experience of covering technology companies on Wall Street and working in Silicon Valley, and serving as an outside adviser to several seed-round startups, Gary Alexander has exposure to many of the themes shaping the industry today. He has been a regular contributor on Seeking Alpha since 2017. He has been quoted in many web publications and his articles are syndicated to company pages in popular trading apps like Robinhood.

Analyst’s Disclosure: I am/we are long DBX. 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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Comments (28)

ValueGrowth Investing profile picture
@Gary Alexander Great Article - I'm long DBX and really confident with management's disciplined execution and undervalued stock price. Would be curious to hear your thoughts on this: "The company also noted that it would lean more on its self-service marketing channels and selectively stop pursuing enterprise deals that would bring low spend/high customization, which should lead to greater sales efficiency overall."

1) Do you think that given the huge FCF, the company could still increase a bit of sales & marketing + R&D and potentially reduce some share buyback for long-term benefits [more paid customers, higher retention - although this increases CAC]

2) Could the fact that DBX said that they will stop pursuing enterprise deals since this have low spend and high customization be detrimental to the business given their recent efforts to expand their customer base more to big enterprises vs only SMBs or individuals? How could this also effect their beta rollout of Spaces - given this is targeted more to the Enterprise customers?
Charl1e profile picture
Great article, easy to understand. Dropbox deserves a higher multiple as they continue generate massive amounts of free cash flow. The self-serve model with 80.1% gross margins is brilliant. I assume the DBX share buy-backs will continue until a fair valuation or something remotely close to one, is reached.
@Charl1e really undervalued company. I'm in the tech business and I'm happy to keep owning DBX because I cannot achieve those numbers with my own business. Given that capital spend will not increase revenue growth, it's probably a good idea to start paying a dividend
saysurf profile picture
Just wondering DBX might pull microstrategy trick with most of the new money raised - can we see any bitcoins on the horizon ;)
Added 33.3% more shares on 22.64. This is free money.. And a very safe way to park your money.
Cash flow numbers are distorted due to the share dilution caused by $260 million in stock based compensation
@nitalsando077 Did not happen after 2018. It's the other way arround right now. They now create more value for shareholders instead.
@User 50432366 Shares outstanding are almost flat over the last 12 months in spite of the massive amount they have already spent on buybacks
@nitalsando077 The massive part is coming. The buybacks has not been alot yet.
01 Mar. 2021
Great article! I am Drop Box shareholder for all the reasons you just mentioned. It is great to read a clear and concise explanation of the outstanding valuation of Dropbox. I have never purchased options on my life yet I know how they work and the risks that go along with them. What are y’all’s opinion on purchasing JAN 22 options on Dropbox?
InvestmentFreak profile picture
I prefer BOX as this company comes more from the corporate side, just recently bought an E-signature start-up and is similarly cheap.
@InvestmentFreak BOX is also nice but alot more expensive then DBX right now.
Shangrila Value profile picture
The 13x FY21 cash flow expectations, is just crazy.
I think you are right! This has only one way to go: UP. Invested 25K just right now.
nickhoag profile picture
Good read. Long $DBX.
No one can answer me with a simple one line answer about why drop box is better than free space that Microsoft of Google offer ? The could space that they offer is a commodity. It does not matter to me if i store my photos in google or MS. Why should I pay for could storage ? And non the less, look at the insider action for the last 6 months.
@mtxA can you answer in one line why Google search is better than others?

How about why MSFT email is better than others?

How about why Zoom is better than others?

People vote with their spending/consumption. Many people are voting that DBX is better than other services, just like they are with the above.

User experience and consumer psychology are difficult phenomena to breakdown into 1 singular point.
edithedon profile picture
@mtxA first of all! Dropbox is not only storage company. If you think it is you didnt do your analys very well. Second quality is on side of a Dropbox plus platform offer you many other interesting tools. Do you understand why they raised money to buyback share, becouse they think is dirt cheap!!! I am just buying and buying, this will exploed trust me, plus imagine value of Hellosign alone in next 5 years, just imagine. Hellosing intigrated in dropbox right now in 20+ countrys. they paid 20M for it now worth about 2B alone. This is not a storage company anymore.
nickhoag profile picture
@mtxA here you go:
It’s a better user experience and overall product.
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