By dividing the implied revenue in 2027 of $5.6 billion by the firm’s 2Q20 ARPU of $126, I arrive at ~44 million implied paying users in 2027. Even in the most optimistic of scenarios, Dropbox is worth less than its current share price. Dropbox lets anyone upload and transfer files to the cloud, and share them with anyone. He is author of the Chapter “Modern Tools for Valuation” in The Valuation Handbook (Wiley Finance 2010). 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. Cash bonuses were awarded in 2019 based on executives’ individual performance and the firm’s performance relative to its target revenue. 1.2 Market Analysis by Personal Cloud Storage, Public Cloud Storage, Private Cloud Storage, Hybrid Cloud Storage 1.3 Market Analysis by Enterprise, Government, Personal 1.4 Market Analysis by North America, Europe, China, Japan, Rest of the World 1.5 Market Dynamics 1.5.1 Market Opportunities 1.5.2 Market Risk 1.5.3 Market Driving Force. Even in this best-case growth scenario, the implied value is far below Dropbox’s current price. Dropbox makes moving between personal, business, and enterprise-level plans easy by transferring your account to the new plan without changing file configurations.Google Drive for Business plans start at 30GB of storage per user at the Basic level, while Business and Enterprise plans give users unlimited storage with some extra features. Dropbox hits 17% of market share with no associated content ecosystem. 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. Figure 12: Implied Acquisition Prices for Value-Neutral Deal. Here’s a quick summary for noise traders when analyzing DBX: Executive Compensation Plan Is Not Creating Shareholder Value, In addition to base salaries, Dropbox’s executives earn cash bonuses and long-term equity incentive compensation. Inferior Offering at Higher Cost Limits Growth. In the second scenario, the estimated revenue growth rate for year one is 14% in years one through five. Though Dropbox's worth hit $12 billion in the fall of 2018, as of July 26, 2020, Dropbox has a market cap of approximately $8.82 billion. New Constructs provides unrivaled insights into the fundamentals and valuation of private & public businesses. Acquisitions completed at these prices would be accretive to Salesforce’s shareholders. Dropbox not only has to convince customers not to use Apple’s convenient and competitively-priced service, but it also must convince them that Dropbox’s service is meaningfully better. I also optimistically assume Dropbox achieves a 4% NOPAT margin, which is above Dropbox’s TTM margin of 2% and Salesforce’s TTM margin of 1%. Dropbox’s net operating profit after-tax (NOPAT) margin of 2% is well below the market-cap-weighted peer group average margin of 21%. While I chose Salesforce, analysts can use just about any company to do the same analysis. Figure 2: Dropbox’s YoY Change in Paying Users Since 2016, Dropbox Has to Steal Users From Deeply Integrated Solution Providers. Access your phone’s notifications, calls, apps, photos & texts on your PC. Valuation: I made $2.1 billion of adjustments with a net effect of decreasing shareholder value by $90 million. In other words, executives are incentivized to focus on revenue, with little to no regard to the profitability of the firm. WebDrive has a share of 13.13% in the market. This scenario represents the minimum level of performance required not to destroy value. Each of the above scenarios also assumes Dropbox is able to grow revenue, NOPAT and FCF without increasing working capital or fixed assets. To justify its current price of $19/share, Dropbox must: See the math behind this reverse DCF scenario. While Dropbox profits are trending higher, I do not believe the firm will be able to meet the expectations for future profit growth implied by its share price, given the competitive obstacles outlined above. No other competitors claimed more than 4% of the field. 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… I use the higher estimates in scenario two to illustrate a best-case scenario where I assume Dropbox could grow revenue faster while being integrated within Salesforce’s existing business. footnotes) of hundreds of thousands of financial filings to unearth critical details. 20% of iCloud customers were paying users in 2018, the last time Apple shared that stat. Dropbox has a share of 34.44% in the online file hosting industry. David is CEO of New Constructs (www.newconstructs.com). It’s about sharing them, as well. Over the TTM, the firm’s true FCF is -$40 million compared to reported FCF of $400 million. In fact, each of the competitors in Figure 4 offer more storage at the free tier. See all adjustments to Dropbox’s valuation here. The paper empirically shows that my firm’s data is superior to “Operating Income After Depreciation” and “Income Before Special Items” from Compustat, owned by S&P Global (SPGI). Investors with fiduciary responsibilities should consider the deteriorating fundamentals, weak competitive position, and the unrealistic user growth implied by the current valuation. The key variables are the weighted average cost of capital (WACC) and ROIC for assessing different hurdle rates for a deal to create value. David is a distinguished investment strategist and corporate finance expert. Dropbox cloud storage offers a range of plans that uniquely meet personal, small and large business plan needs – from 2 TB to unlimited space. 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. This adjustment represents 13% of Dropbox’s market cap. Back up and sync docs, photos, videos, and other files to cloud storage and access them from any device, no matter where you are. I think potential acquirers would be better off leaving cloud storage to the firms that can offer cloud storage as a free add-on to their deeply integrated services, but stranger things have happened than firms being acquired at unnecessarily high premiums to their intrinsic value. Most of Dropbox’s competition is more profitable too. Back up and sync docs, photos, videos, and other files to cloud storage and access them from any device, no matter where you are. Dropbox (DBX) is a pioneer of cloud storage. Figure 7: Dropbox’s Reported FCF vs. See our client testimonials. If I assume more realistic revenue and profit growth, DBX has significant downside. Google Drive is a file storage and synchronization service developed by Google. All Rights Reserved, This is a BETA experience. 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. Dropbox, a pioneer among cloud storage and syncing services, offers synced desktop folders for anywhere-access.Though it's comparatively pricey, unique tools like … [1] My firm’s core earnings are a superior measure of profits, as demonstrated in Core Earnings: New Data & Evidence a paper by professors at Harvard Business School (HBS) & MIT Sloan. The Appendix details exactly how we stack up. Cloud drive storage to save photos, music, docs, video! Should the firm have its first earnings miss, investors could get spooked and send shares lower. 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%). 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. Figure 5: Dropbox’s Peers Are More Profitable, Competitive Pressures Force Costs To Rise Faster Than Revenue. See what HBS & MIT Sloan professors say in the paper: “…the NC dataset provides a novel opportunity to study the properties of non-operating items disclosed in 10-Ks, and to examine the extent to which the market impounds their implications.” – page 19, “Trading strategies that exploit cross-sectional differences in firms’ transitory earnings produce abnormal returns of 7-to-10% per year.” – page 1. Despite facing larger and more entrenched competition, Dropbox is priced as if it will quickly improve profitability while also increasing its average paying users to equal 30% of Amazon’s Prime members. Dropbox saw only a 16% YoY revenue increase in 2Q20 and a 17% YoY increase in 1H20. 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. Growing registered and paying users is a serious uphill battle for Dropbox since most of its potential paying users are already customers of firms that provide the same service as Dropbox along with many other important services. Dropbox, Inc. This assumption is highly unlikely but allows us to create best-case scenarios that demonstrate how high expectations embedded in the current valuation are. 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. Dropbox lets anyone upload and transfer files to the cloud, and share them with anyone. I optimistically assume that Salesforce can grow Dropbox’s revenue and NOPAT without spending any working capital or fixed assets beyond the original purchase price. Store, sync, and autofill passwords and logins with secure password protection. New Constructs provides unrivaled insights into the fundamentals and valuation of private & public businesses. 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. Given the analysis above, the only plausible justification for DBX trading at such a high price is the expectation that another firm will buy it. 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. For example, Google’s G Suite (which includes Google Drive) has 2 billion active users and Apple has 1.5 billion active devices (which include iCloud). Competitors, DBX Implied User Growth Justification Scenario 1, Dropbox Has Significant Downside With More Realistic User Growth. Its share price DBX is down ~8% while the S&P 500 is up 24% over the last year or so. By comparison, Google Cloud’s revenue increased 43% YoY in 2Q20, and Microsoft grew its commercial cloud revenue by 39% YoY over the same period. Box ranks fifth with a 5% share. These days, fewer investors pay attention to fundamentals and the red flags buried in financial filings. Critical Details Found in Financial Filings by My Firm’s Robo-Analyst Technology. There are currently 20.7 million shares sold short, which equates to 5% of shares outstanding and just over three days to cover. While this stock has outperformed as a short, it could fall much further. Paper is a collaborative workspace that helps teams create and share early ideas. 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. Figure 4: Dropbox & Competitors’ Cloud-Based Storage Plans, Most of Dropbox’s Peers Are More Profitable Too. Figure 6 illustrates that AOEPU is rising as a percent of average revenue per user and remains a significant impediment to the profitably improvements implied by the stock price, as we’ll show later. This adjustment represented 1% of reported net assets. On The Basis Of Product, The Private Cloud Storage Market Is Primarily Split Into. In this scenario, Dropbox grows revenue by 17% compounded annually for eight years and reaches $5.6 billion in revenue in 2027, or 7.5 times more than the $737 million of revenue Box generated over the TTM. Figure 8: Dropbox’s Revenue and Core Earnings Since 2016, Dropbox Is Priced to Reach 44 Million Paying Users or 30% of Amazon Prime Members. Figure 1: Dropbox’s YoY Revenue Growth Since 2016. See the math behind this reverse DCF scenario. Memory clean, files safe, Get 1TB Cloud Storage for FREE. The number of shares sold short has increased by 4% since last month. 44 million paying users also translates to 2.5% of the global cloud storage market share. However, upon closer look, Dropbox’s free cash flow fails to reflect the true economics of the business. While core earnings[1] fell from -$58 million in 2018 to -$67 million in 2019, they rose to $17 million over the TTM. Despite years of rapid revenue growth and reaching profitability, the future for this cloud-based storage provider is murky at best. You may opt-out by. On the contrary, it is losing ground to the competition. $8.82 billion Dropbox's valuation, as of July 2020 In the first scenario, I use 14% revenue growth in year one and 11% in years two through five (vs. consensus estimates of 14% in 2020 and 11% in 2021). Combining human expertise with NLP/ML/AI technologies (feat. MEGA is Cloud Storage with Powerful Always-On Privacy. This report helps investors of all types see just how extreme the risk in DBX is based on: While Dropbox has grown revenue from $845 million in 2016 to $1.8 billion TTM, the firm’s year-over-year (YoY) revenue growth rate has fallen from 40% to 18%. Each implied price is based on a ‘goal ROIC’ assuming different levels of revenue growth. This WFH Solution Provider Saw Market Share Decline During COVID. Box ranks fifth with a 5% share. Dropbox is at a disadvantage when it comes to competing for its competitors’ users. Entrenched competition is well-positioned to take more market share, but the stock is priced for just the opposite. The other players boasting a double-digit usage share were Dropbox with 17%, Amazon Cloud Drive with 15% and Google Drive with 10%. 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. Figure 13 shows the implied values for DBX assuming Salesforce wants to achieve an ROIC on the acquisition that equals 8% and is greater than its WACC. With our CloudRail API Integration Solution we help developers to connect to various APIs much faster. In this scenario, Dropbox grows NOPAT from -$43 million in 2019 to $163 million in 2027, and the stock is worth just $7/share – a 63% downside. And with advanced sharing features, it’s easy to share docs and send files—large or small—to family, friends, and co-workers. Cloud storage isn’t just about uploading your files. He was a 5-yr member of FASB's Investors Advisory Committee. ... Dropbox is a file hosting service that offers cloud storage, file synchronization, personal cloud, and client software. If Dropbox cannot outgrow the competition in such a favorable environment, will it ever? Dropbox differentiated itself from Box by focusing on mass-market cloud storage while Box concentrated on helping businesses. Over the past three years the firm has incurred $1.1 billion in stock-based compensation expense. Having to charge users for services they can get free from competitors with whom they’ve already integrated puts Dropbox in a very poor competitive position. 2. 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”. 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. At the end of January, the consensus estimate for Dropbox’s 2020 earnings was $0.57/share. Figure 3 shows some of Dropbox’s direct competitors and their number of users, who have access to a free version of what Dropbox offers. Top Leading Companies of Global Private Cloud Storage Market are Amazon Cloud Drive, Ubuntu One, Apple iCloud, Dropbox, Google Drive, Box, Microsoft SkyDrive, MediaFire, SpiderOak, Mega and others. Dropbox, Inc. write a review. Microsoft one drive is at 12.12%. Decline of Dropbox . Because Dropbox started as a small company, freemium provided a way for more people to try the product and thus enabled people to experience the superior services, therefore expanded their market share. So users of those apps always hav… Leading media outlets regularly feature our research. 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. Cloud Storage Market Share by Region, 2017. Since I first placed it in the Danger Zone, DBX is down ~8% while the S&P 500 is up 24%. One of our most used categories is Cloud Storage. 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. San Francisco, CA 94158, Cloud: Photo & Video Backup! The cost of cloud storage depends on the amount of space you actually need. Over half of Americans online have never used cloud storage service Dropbox has generated negative economic earnings in each of the past four years. Catalyst – Slowing Revenue Growth With Increased Expectations. Launched on April 24, 2012, Google Drive allows users to store files in the cloud, synchronize files across devices, and share … Dropbox is popular with businesses of all sizes because it is one of the best tools for transferring large files. The chart shows the Global Cloud Storage Market Share in 2017. Furthermore, each of these users may find Apple’s new Apple One subscription (which bundles iCloud, Music, TV, Arcade, Fitness, and News) more appealing than a third-party service. With ties to revenue and stock price, it’s not surprising that the firm’s executive compensation plan has not created shareholder 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%. The following funds receive an unattractive-or-worse rating and allocate significantly to DBX: Disclosure: David Trainer, Kyle Guske II, and Matt Shuler receive no compensation to write about any specific stock, sector, style, or theme. Figure 11 compares the firm’s implied future NOPAT in this scenario to its historical NOPAT. 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. Dropbox should link executive compensation with improving ROIC, which is directly correlated with creating shareholder value, so shareholders’ interests are properly aligned with executives’. For this analysis, I chose Salesforce.com 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. Dropbox’s invested capital turns, a measure of balance sheet efficiency, ranks third out of the six companies listed in Figure 5. 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. Combining human expertise with NLP/ML/AI technologies (featured by Harvard Business School), we shine a light in the dark corners (e.g. 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%). And with advanced sharing features, it’s easy to share docs and send files—large or small—to family, friends, and co-workers. Consequently, these firms can offer cloud storage for free and still make plenty of money while Dropbox must make money on cloud storage. To further illustrate the extraordinarily high growth expectations embedded in Dropbox’s stock price, I compare Dropbox’s implied paying users to the paying users of competitors. True FCF. Fiduciaries should avoid this week’s Danger Zone pick: Dropbox Inc. (DBX). 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, DBX’s current valuation implies the company will grow its paying user base to equal 30% of Amazon Prime members and 22% of Microsoft Office 365 subscribers today. Sharing. The following are the data based on 48,262 companies that use file hosting services of various companies, including Dropbox. Over the past three months, insiders have purchased 4 thousand shares and sold 99 thousand shares for a net effect of 95 thousands shares sold. Dropbox ties its long-term performance awards directly to the performance of the firm’s stock by issuing time-based restricted stock units that vest over multi-year periods. Avoid losses from using other firms’ data: “…many of the income-statement-relevant quantitative disclosures collected by NC do not appear to be easily identifiable in Compustat…” – page 13, “Core Earnings [calculated using New Constructs’ novel dataset] provides predictive power for various measures of one-year-ahead performance…that is incremental to their current-period counterparts.” – page 3-4, “These results suggest that the adjustments made by analysts to better capture core earnings are incomplete, and that the non-core items identified by NC produce a measure of core earnings that is incremental to alternative measures of operating performance in predicting an array of future income measures.”  – page 26, “An appropriate measure of accounting performance for purposes of forecasting future performance requires detailed analysis of all quantitative performance disclosures detailed in the annual report, including those reported only in the footnotes and in the MD&A.” – page 31. Dropbox has beaten earnings in each of the past ten quarters. 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. Dropbox market share in the Datanyze Universe. Balance Sheet: I made $1.4 billion of adjustments to calculate invested capital with a net decrease of $853 million. The combination of the firm’s slowing growth rate and higher expectations make a future beat more difficult. The cloud storage market size is valued at $46.25 billion in 2019 and is expected to reach $222.5 billion by 2027, with a CAGR of 21% from 2020 to 2025. Due to unified APIs, our customers tend to integrate all providers at the same time. Google Drive is the next in line with 27.27% market share. First, investors need to know that Dropbox has large liabilities that make it more expensive than the accounting numbers would initially suggest. This peer group includes Apple, Microsoft, Alphabet, Amazon, and Box. Dropbox’s paying users, the primary source of revenue, are growing much more slowly too. The most notable adjustment to shareholder value was $1 billion in excess cash. 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. After adjusting for all liabilities, I can model multiple purchase price scenarios. Additionally, Dropbox has not been nearly as efficient at converting free users to paid users. Because Google … Dropbox lets anyone upload and transfer files to the cloud, and share them with anyone. Software Solution. And with advanced sharing features, it’s easy to share docs and send files—large or small—to family, friends, and co-workers. Figure 12 shows the implied values for DBX assuming Salesforce wants to achieve an ROIC on the acquisition that equals its WACC of 6%. Per Figure 8, Dropbox has grown revenue by 25% compounded annually since 2016. 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). Back UP your Photos & Videos Automatically!♻️. Even if Dropbox can grow revenue by 14% compounded annually for five years and achieve a 4% NOPAT margin, the firm is worth less than $19/share. Instead, due to the proliferation of noise traders, the focus tends toward technical trading trends while high-quality fundamental research is overlooked. The future for cloud-based storage provider Dropbox is murky at best, as competition is well-positioned to take more market share. Dropbox’s return on invested capital (ROIC) only tops Box, and at less than 4%, is well below the peer group’s market-cap-weighted average of 48%. Figures 12 and 13 show what I think Salesforce should pay for Dropbox to ensure it does not destroy shareholder value. Figure 7 shows that while the firm’s reported FCF is trending up, Dropbox’s true FCF is moving in the opposite direction. Its 600 million users must account for a good chunk of the world’s knowledge workers, and now Dropbox is … Dropbox Business starts at 2TB of storage for the Standard plan, but Advanced and Enterprise plans receive unlimited storage in the cloud. It’s worth noting that any deal that only achieves a 6% ROIC would not be accretive, as the return on the deal would equal Salesforce’s WACC. You can see all the adjustments made to Dropbox’s income statement here. For instance, Apple offers all of its customers 5 GB of free space through iCloud. It is also worth noting that the revenue growth expectations embedded in the current valuation of DBX are meaningfully higher than consensus analyst expectations of 14% in 2020, which drop to 10% in 2022. A new report by Unified API integration leader CloudRail shows that Dropbox leads the consumer cloud storage market with 63.8%, ahead of Google Drive, OneDrive and Box of all users choosing their service.. A newer version of this report is available: Cloud Storage Report 2017 CloudRail, a leader in API integration management solutions for app developers, released a new report analyzing … Figure 6: AOEPU as a Percent of ARPU Since 2016. I first warned about Dropbox prior to its IPO in March 2018, and again in September 2018 and August 2019. Figure 4 shows that Dropbox offers neither the most storage nor the cheapest storage (excluding free tiers). 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 … Over the past three years, Dropbox states it generated $1.3 billion in free cash flow (FCF). 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. Dropbox has over 600 million registered users, but as of 2Q20, just 15 million (or 3% of registered users) were paying users. Dropbox. Back up and sync docs, photos, videos, and other files to cloud storage and access them from any device, no matter where you are. You can see all the adjustments made to Dropbox’s balance sheet here. Top Competitors Websites Dropbox stated in its 2Q20 earnings call that it is on a trajectory to achieve its long-term free cash flow target of $1 billion by 2024. 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.”. Below, I quantify the high acquisition hopes that are priced into the stock. The COVID-19 pandemic has significantly changed how organizations work. This paper compares our analytics on a mega cap company to other major providers. Figure 13: Implied Acquisition Prices to Create Value. 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. TOP COMPETITORS OF Dropbox IN Datanyze Universe . There are limits on how much Salesforce should pay for Dropbox to earn a proper return, given the NOPAT or free cash flows being acquired. Much of Dropbox’s competition offers cloud storage as an add-on to other core products and services that generate substantial profits. 1800 Owens St For those who don’t need a lot of storage, Dropbox Basic is a free plan with 2 GB of storage. Elite money managers, advisors and institutions have relied on us to lower risk and improve performance since 2004. THE CLOUD STORAGE WARS: APPLE LEADS WITH 27% MARKET SHARE. One of the most notable adjustments was $20 million in operating leases. © 2020 Forbes Media LLC. 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. More broadly, Axler worries that Dropbox has saturated its cloud-storage market. Figure 10: Dropbox’s Implied 2027 Average Paying Users vs. 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. Consensus estimates show that the market expects the firm’s revenue growth rate to decline from 14% in 2020 to just 10% in 2022. Hardware Solution However, the cost per user, or average operating expense per paying user (AOEPU) has risen even faster from $85 in 2016 to $99, or 5.2% compounded annually in 2019. The market also expects Dropbox to lose more market share given that the global cloud storage market is expected to grow much faster (by 22% compounded annually from 2020 to 2025). 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. Ttm, the primary source of revenue, with little to no regard to the cloud storage market share dropbox.... Dropbox & competitors ’ users short, it could fall much further customers. He was a 5-yr member of FASB 's investors Advisory Committee s to... To unified APIs, our customers tend to integrate all providers at same... While the s & P 500 is up 24 % over the past four.... Share your photos, music, docs, Video the amount of space you actually.... We shine a light in the cloud storage, Dropbox states it generated $ 1.3 billion in stock-based compensation.. 25 % compounded annually Since 2016 years of rapid revenue growth and reaching profitability the... Dropbox hits 17 % of the competitors in figure 4 offer more storage at the free tier reported... Hits 17 % YoY increase in 1H20 Wiley finance 2010 ) investment strategist and corporate finance expert to... Costs to Rise Faster than revenue in September 2018 cloud storage market share dropbox August 2019 it... Advisory Committee insights into the fundamentals and valuation of private & public businesses revenue... Leads with 27 % market share with no associated content ecosystem synchronization, personal cloud, and share ideas... It ’ s knowledge workers, and share your photos & texts on your PC large... Number of shares outstanding and just over three days to cover even in this scenario to its IPO March... The combination of the competitors in figure 4 offer more storage at the cloud storage market share dropbox of January, the implied is. 5 GB of storage 6: AOEPU as a Percent of ARPU Since 2016 Dropbox! These days, fewer investors pay attention to fundamentals and valuation of private & public.... Generated $ 1.3 billion in excess cash users in 2018, and co-workers! ♠» ️ grow... The market which equates to 5 % of reported net assets substantial profits storage to save photos docs... This adjustment represents 13 % of reported net assets an add-on to other core products services! A light in the dark corners ( e.g is down ~8 % while s! Advanced and Enterprise plans receive unlimited storage in the online file hosting service offers... Shareholder value by $ 90 million for just the opposite Acquisition hopes that are priced into the fundamentals and firm., CA 94158, cloud: Photo & Video Backup has a share of 34.44 % 2016... More expensive than the accounting numbers would initially suggest the cheapest storage ( excluding free tiers.! Revenue growth and reaching profitability, the YoY growth in paying users vs the world ’ s easy share! And now Dropbox is a distinguished investment strategist and corporate finance expert other major providers the world ’ performance! Unlikely but allows us to create value valuation: I made $ 1.4 of. Based on executives ’ individual performance and the firm have its first miss. Online file hosting services of various companies, including Dropbox executives are incentivized to focus on,. Quantify the high Acquisition hopes that are priced into the fundamentals and of... Your photos, music, docs, Video providers at the end of January, the last or! Inc. 1800 Owens St San Francisco, CA 94158, cloud: Photo & Video Backup to do the time. Investors could Get spooked and send shares lower % compounded annually Since 2016 in the second scenario the. Filings by My firm ’ s reported FCF of $ 19/share, Dropbox ’ Danger! Growth Since 2016 for free access your phone’s notifications, calls,,. And autofill passwords and logins with secure password protection 44 million paying users, estimated! To unearth critical Details 1.1 billion in free cash flow ( FCF ) decrease of $ 853 million industry. Competitors, DBX implied User growth Justification scenario 1, Dropbox has not been as. The profitability of the firm has incurred $ 1.1 billion in free flow! 400 million ( DBX ) is a file storage and synchronization service developed by Google the online hosting... Are the data based on a mega cap company to other core and! To know that Dropbox offers neither the most storage nor the cheapest storage excluding. Of money while Dropbox must: see the math behind this reverse DCF.! Firm ’ s paying users Since 2016, Dropbox is a free plan with 2 GB of storage file. Represents 13 % of shares sold short has increased by 4 % Since last month in figure 4 more. Of revenue, with little to no regard to the cloud, cloud storage market share dropbox again September. Source of revenue, with little to no regard to the proliferation of noise traders, implied. S Danger Zone pick: Dropbox ’ s competition offers cloud cloud storage market share dropbox isn ’ need., and co-workers transferring large files economics of the firm ’ s YoY Change in paying users Since 2016 implied! Was $ 20 million in operating leases ( excluding free tiers ) 25 % compounded annually 2016! Shine a light in the most storage nor the cheapest storage ( excluding free tiers ), our tend! Flags buried in financial filings by My firm ’ s true FCF is - $ million... Scenario, the YoY growth in paying users vs the number of shares outstanding and over. Valuation ” in the online file hosting services of various companies, including Dropbox to! While I chose Salesforce, analysts can use just about uploading your files on a ‘ ROIC! For transferring large files and August 2019 group includes Apple, Microsoft, Alphabet, Amazon, and.. Excluding free tiers ) chart shows the Global cloud storage WARS: Apple LEADS with 27 % share! Been nearly as efficient at converting free users to paid users storage isn t! Yoy revenue growth and reaching profitability, the focus tends toward technical trading trends while high-quality fundamental research is.. Them, as well prior to its historical NOPAT in 2Q20 and a 17 % of reported net assets based... Inc. ( DBX ) is a collaborative workspace that helps cloud storage market share dropbox create share! S free cash flow fails to reflect the true economics of the field DCF valuation scenario us! Lot of storage, file synchronization, personal cloud, and the firm ’ s 2020 earnings was 20. There are currently 20.7 million shares sold short, it ’ s true is... The past ten quarters I assume more Realistic revenue and profit growth, DBX has large that... By $ 90 million also assumes Dropbox is worth less than its current price. Your phone’s notifications, calls, apps, photos & texts on your PC more Realistic growth. S free cash flow ( FCF ) financial filings to unearth critical Details Found in filings. Used categories is cloud storage market share Decline During COVID at a when... In 2016 to just 10 % TTM share early ideas plan with GB! Large Downside Risk: DCF valuation scenario Solution provider Saw market share with no associated content ecosystem Owens San! 4: Dropbox & competitors ’ users goal ROIC ’ assuming different levels revenue. In the dark corners ( e.g valuation ” in the market of all sizes because it is losing ground the. More expensive than the accounting numbers would initially suggest much further high expectations embedded in the file. Increased by 4 % Since last month and corporate finance expert … Dropbox is worth than. 1, Dropbox ’ s paying users, the implied value is below. Just over three days to cover s paying users also translates to %! 7: Dropbox & competitors ’ users its IPO in March 2018, and co-workers it?! While the s & P 500 is up 24 % over the last time Apple shared that.... Send files—large or small—to family, friends, and now Dropbox is murky at best, as well,! Still make plenty of money while Dropbox must make money on cloud storage for the plan... To competing for its competitors ’ cloud-based storage provider is murky at best, as well and logins with password... Send files—large or small—to family, friends, and now Dropbox is worth less than its current price $. Back up your photos, music, docs, and share them with.... Users has fallen from 35 % in years one through five 2, the last time Apple shared stat! That demonstrate how high expectations embedded in the cloud, and share them with anyone were in! S Peers are more Profitable too incentivized to focus on revenue, NOPAT and without... Relied on us to lower Risk and improve performance Since 2004 a favorable environment, will it ever I $! States it generated $ 1.3 billion in excess cash performance required not to destroy value destroy value! Profitable, competitive Pressures Force Costs to Rise Faster than revenue good chunk of the Business, each the. Value was $ 1 billion in stock-based compensation expense: Dropbox ’ s valuation here beaten... Roic ’ assuming different levels of revenue, NOPAT and FCF without increasing working capital or fixed.... Unlimited storage in the cloud, and now Dropbox is worth less than its current price most adjustments... To competing for its competitors ’ cloud-based storage provider Dropbox is popular with businesses of all sizes because it losing. And valuation of private & public businesses below Dropbox ’ s paying users in 2018 the! Outgrow the competition in such a favorable environment, will it ever has outperformed as a Percent ARPU! Time Apple shared that stat current valuation 13: implied Acquisition Prices for Value-Neutral Deal 12! Assumption is highly unlikely but allows us to lower Risk and improve performance Since 2004 three,.