Investors with fiduciary responsibilities should consider the deteriorating fundamentals, weak competitive position, and the unrealistic user growth implied by the current valuation. Dropbox controls 21% of the cloud storage market, according to Datanyze, putting it in second place behind Google Drive (34%) and ahead of OneDrive (12%). Dropbox cloud storage offers a range of plans that uniquely meet personal, small and large business plan needs – from 2 TB to unlimited space. Competitors, DBX Implied User Growth Justification Scenario 1, Dropbox Has Significant Downside With More Realistic User Growth. Figure 9: Current Valuation Implies Unrealistic Revenue Growth, DBX Implied Revenue Justification Scenario 1, Dropbox’s Average Paying Users Need to More Than Triple to Justify Valuation. Dropbox has beaten earnings in each of the past ten quarters. At the end of January, the consensus estimate for Dropbox’s 2020 earnings was $0.57/share. These days, fewer investors pay attention to fundamentals and the red flags buried in financial filings. Even in this best-case growth scenario, the implied value is far below Dropbox’s current price. Figure 12: Implied Acquisition Prices for Value-Neutral Deal. Leading media outlets regularly feature our research. Most of Dropbox’s competition is more profitable too. Free Online Storage, Dubox Cloud Storage: Cloud Backup & Data backup, Dubox: Cloud Storage to Backup, Sync&File upload, Dropbox Passwords - Secure Password Manager, Cookies help us deliver our services. Over the past three years, Dropbox states it generated $1.3 billion in free cash flow (FCF). First, investors need to know that Dropbox has large liabilities that make it more expensive than the accounting numbers would initially suggest. Below are specifics on the adjustments I make based on Robo-Analyst findings in Dropbox’s 10-Qs and 10-K: Income Statement: I made $67 million of adjustments, with a net effect of removing $9 million in non-operating expenses (1% of revenue). And with advanced sharing features, it’s easy to share docs and send files—large or small—to family, friends, and co-workers. The chart shows the Global Cloud Storage Market Share in 2017. And with advanced sharing features, it’s easy to share docs and send files—large or small—to family, friends, and co-workers. Figure 11: DBX Has Large Downside Risk: DCF Valuation Scenario. The Appendix details exactly how we stack up. Below, I quantify the high acquisition hopes that are priced into the stock. Without significant increases in the margin or revenue growth assumed in this scenario, an acquisition of DBX at its current price destroys significant shareholder value. 44 million paying users also translates to 2.5% of the global cloud storage market share. Memory clean, files safe, Get 1TB Cloud Storage for FREE. Inferior Offering at Higher Cost Limits Growth. Often the largest risk to any bear thesis is what I call “stupid money risk”, which means an acquirer comes in and buys Dropbox at the current, or higher, share price despite the stock being overvalued. Acquisitions completed at these prices would be accretive to Salesforce’s shareholders. © 2020 Forbes Media LLC. From Dropbox’s proxy statement, the compensation committee notes “annual revenue continued to be the best indicator of our successful execution of our annual operating plan.”. Top Competitors Websites Cloud Storage Market Share by Region, 2017. More broadly, Axler worries that Dropbox has saturated its cloud-storage market. One of the most notable adjustments was $20 million in operating leases. For this report we had a deeper look at all apps on either Android or iOS which integrate at least Dropbox, Google Drive, OneDrive and Box via the CloudRail solution. The second platform on our list enjoyed popularity among consumers as an easy-to-use file storage suite, although it has shifted towards the enterprise market in recent years. True FCF. With Dropbox as your backup solution, it’s easy to save your files to the cloud instead of using an external hard drive, flash drive, or any other remote storage device. Google Drive is the next in line with 27.27% market share. On The Basis Of Product, The Private Cloud Storage Market Is Primarily Split Into. Cloud file-sharing services have become essential tools for many organizations that have put work-from-home policies in place and significantly increased the amount of data they store in the cloud.. All cloud file services provide a basic suite of collaboration, access control and data protection services. EY & Citi On The Importance Of Resilience And Innovation, Impact 50: Investors Seeking Profit — And Pushing For Change, Michigan Economic Development Corporation With Forbes Insights, Casey’s Stock Looks Expensive In the Long Run, Face Reality: Pit Yourself Against Nasdaq 100, Dow Jones Today: Stocks Erase Losses, Coronavirus Variant Vaccine Possible; Apple Thinking Of Apple Car, Apple’s Rumored EV Project Is A True Threat To Tesla’s Hype Machine, MDU Resources: Low Risk Bet On An Infrastructure Boom, Virus Stimulus Bill Mandates Pointless Pollution Study, Auto Retailer Drives Lower After Q3 Report, See the math behind this reverse DCF scenario, directly correlated with creating shareholder value, Competition deeply already integrated with target users, Doing the math: the stock price implies Dropbox can acquire 44 million paying users, equal to 30% of Amazon Prime members and 22% of Microsoft Office 365 subscribers, Grow revenue at 17% (vs. average consensus estimates from 2020 to 2022 of 12%) compounded annually over the next eight years, Immediately achieve a 7% (vs. Amazon’s TTM margin of 5%) NOPAT margin, Grow revenue at 11% (equal to 2021 consensus estimate) compounded annually over the next eight years, Immediately achieve a 4% NOPAT margin (double TTM margin of 2%), $864 million in operating leases (11% of market cap), $18 million in outstanding employee stock options (<1% of market cap), Deeply embedded competition with deeper pockets, Lack of significant and durable competitive advantages, Valuation implies massive paying user growth, PartnerSelect Smaller Companies Fund (MSSFX) – 2.7% allocation and unattractive rating, Catalyst Buyback Strategy Fund (BUYCX) – 2.6% allocation and very unattractive rating, Columbia Seligman Comm & Info Fund (SLMCX) – 2.0% allocation and unattractive rating, Columbia Seligman Global Technology Fund (SHGTX) – 2.0% allocation and unattractive rating. 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