Additionally, Dropbox has not been nearly as efficient at converting free users to paid users. Leading media outlets regularly feature our research. Access and share your photos, docs, and more from anywhere for free. Because Google … This adjustment represents 13% of Dropbox’s market cap. When I close the accounting loopholes, I find that over the past three years, Dropbox generated a cumulative $329 million in true FCF and that FCF is rapidly declining. Figures 12 and 13 show what I think Salesforce should pay for Dropbox to ensure it does not destroy shareholder value. While this stock has outperformed as a short, it could fall much further. Even in this best-case growth scenario, the implied value is far below Dropbox’s current price. Combining human expertise with NLP/ML/AI technologies (feat. Dropbox (DBX) is a pioneer of cloud storage. The stock will also likely sink should any of its competitors get more aggressive and offer more cloud storage at even lower prices so that Dropbox’s value proposition gets only weaker. Figure 13: Implied Acquisition Prices to Create Value. Jump forward to today, and the 2020 consensus estimate has risen to $0.77/share, despite underwhelming user growth during the shift to work-from-home. In other words, executives are incentivized to focus on revenue, with little to no regard to the profitability of the firm. Paper is a collaborative workspace that helps teams create and share early ideas. Store, sync, and autofill passwords and logins with secure password protection. The report also revealed that cloud storage is overwhelmingly dominated by music, with about 90 percent of Apple, Amazon and Google cloud users storing music in the cloud. Figure 4: Dropbox & Competitors’ Cloud-Based Storage Plans, Most of Dropbox’s Peers Are More Profitable Too. Much of Dropbox’s competition offers cloud storage as an add-on to other core products and services that generate substantial profits. As featured in the HBS & MIT Sloan paper, Core Earnings: New Data and Evidence, our superior data drives uniquely comprehensive and independent debt and equity investment ratings, valuation models and research tools. Meanwhile, Box (BOX), a direct competitor, had ~13 million paying users out of just 71 million registered users, or 18%, as of 2Q20. Per Figure 8, Dropbox has grown revenue by 25% compounded annually since 2016. footnotes) of hundreds of thousands of financial filings to unearth critical details. Its share price DBX is down ~8% while the S&P 500 is up 24% over the last year or so. I first warned about Dropbox prior to its IPO in March 2018, and again in September 2018 and August 2019. Fiduciaries should avoid this week’s Danger Zone pick: Dropbox Inc. (DBX). New Constructs provides unrivaled insights into the fundamentals and valuation of private & public businesses. Having been an early mover in the cloud-computing market in 2007, it's been able to sustain a sizable market share of this proliferating segment. Since I first placed it in the Danger Zone, DBX is down ~8% while the S&P 500 is up 24%. Figure 11: DBX Has Large Downside Risk: DCF Valuation Scenario. This peer group includes Apple, Microsoft, Alphabet, Amazon, and Box. Over the past three years the firm has incurred $1.1 billion in stock-based compensation expense. However, upon closer look, Dropbox’s free cash flow fails to reflect the true economics of the business. Decline of Dropbox . Figure 7: Dropbox’s Reported FCF vs. As investors focus more on fundamental research, research automation technology is needed to analyze all the critical financial details in financial filings as shown in the Harvard Business School and MIT Sloan paper, “Core Earnings: New Data and Evidence”. Below, I quantify the high acquisition hopes that are priced into the stock. One of our most used categories is Cloud Storage. Dropbox is one of the biggest names in cloud storage.But as with any other industry, there are competitors chipping away at its market share.Read on to learn more about Dropbox … On The Basis Of Product, The Private Cloud Storage Market Is Primarily Split Into. The chart shows the Global Cloud Storage Market Share in 2017. Each implied price is based on a ‘goal ROIC’ assuming different levels of revenue growth. 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%). Its 600 million users must account for a good chunk of the world’s knowledge workers, and now Dropbox is … For instance, Apple offers all of its customers 5 GB of free space through iCloud. All Rights Reserved, This is a BETA experience. New Constructs provides unrivaled insights into the fundamentals and valuation of private & public businesses. Memory clean, files safe, Get 1TB Cloud Storage for FREE. Despite focusing on workflow optimization and adding product features such as HelloSign, Passwords, and Spaces, Dropbox has been unable to reverse its declining growth rates. At the end of January, the consensus estimate for Dropbox’s 2020 earnings was $0.57/share. While many cloud storage systems focus on collaborating on smaller files, Dropbox makes it easy for businesses to share large documents, or video files that might not be shareable on other cloud storage systems. Cash bonuses were awarded in 2019 based on executives’ individual performance and the firm’s performance relative to its target revenue. The Appendix details exactly how we stack up. If I assume more realistic revenue and profit growth, DBX has significant downside. 44 million paying users also translates to 2.5% of the global cloud storage market share. I think it is difficult to make a straight-faced argument that Dropbox can maintain that level of market share with a more expensive and less integrated product. Cloud Storage Market Share by Region, 2017. While I chose Salesforce, analysts can use just about any company to do the same analysis. This paper compares our analytics on a mega cap company to other major providers. For this analysis, I chose Inc. (CRM) as a potential acquirer of Dropbox since Dropbox already integrates with Salesforce’s cloud-based platform and such vertical integration would give Salesforce greater in-house services and access to Dropbox’s over 600 million registered users. TOP COMPETITORS OF Dropbox IN Datanyze Universe . Due to unified APIs, our customers tend to integrate all providers at the same time. By using our services, you agree to our use of cookies, Dropbox: Cloud Storage to Backup, Sync, File Share, By purchasing this item, you are transacting with Google Payments and agreeing to the Google Payments. First, investors need to know that Dropbox has large liabilities that make it more expensive than the accounting numbers would initially suggest. Even though Dropbox faces more competition, the firm has successfully increased its average revenue per paying user (ARPU) from $111 in 2016 to $123 in 2019, or 3.6% compounded annually. Once you’ve downloaded the Dropbox app on your computer, simply drag and drop the files you’d like to back up into the Dropbox folder on your desktop. Per Figure 2, the YoY growth in paying users has fallen from 35% in 2016 to just 10% TTM. Back UP your Photos & Videos Automatically!♻️. This scenario represents the minimum level of performance required not to destroy value. The leading region in the Cloud Storage Industry was North America with a 42% cloud storage market share in 2017, followed by Europe with 28% cloud storage market share, Asia-Pacific with 25%, and the rest of the world with 5%. Dropbox has beaten earnings in each of the past ten quarters. Dropbox’s share of the global cloud storage market has fallen from 4.4% in 2017 to 3.6% in 2019 as more competitors enter the space and existing competition ramped up storage options. 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. See the math behind this reverse DCF scenario. With COVID-19-induced disruptions forcing most businesses to adapt their operations to be more remote friendly, Dropbox was in prime position to gain market share. Further, Dropbox’s relative underperformance to its stronger peers during the COVID-19 disruptions could cause investors to wake up to the fact that Dropbox is losing market share and cause them to rotate their money into better investments. Dropbox market share in the Datanyze Universe. 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. S Danger Zone pick: Dropbox Inc. ( DBX ) t need lot... Of private & public businesses competitors, DBX has Significant Downside with more User., personal cloud, and now Dropbox is … 2 for those who don ’ just. A mega cap company to do the same analysis flow ( FCF ) years of rapid revenue growth and profitability! For Value-Neutral Deal storage WARS: Apple LEADS with 27 % market share not destroy shareholder value minimum of! 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