Dropbox, Inc.

DBX Details

Dropbox, Inc. (NASDAQ: DBX) is a collaboration platform that lets users 1) Create, which incorporates Dropbox paper and document scanners, and 2) Collaborate. 2) Among the features accessible are search, rich previews, Dropbox Smart Sync, version history, third-party ecosystem, rewind, PC backup, passwords, and vault. 3) Folders, shared links, file transfers, file requests, and watermarking are all included in the Share feature. 4) Collaborate, with annotations and comments, a file activity stream, viewer information and presence, and HelloSign, and 5) Safe, with encryption, file recovery, and administrator controls.

Latest News:

• Business Updates: DBX delivered new capabilities and features across Backup, Shop, and document workflows, including HelloSign, DocSend, and PDF editing, in the first quarter of 2022, all aimed at helping clients manage, secure, and accomplish more with their digital assets.

Q1 FY22 Results:

• Continuing Revenue Growth: The company's revenue increased by 9.92% to USD 562.4 million in Q1 FY22 compared to USD 511.6 million in Q1 FY21, due to an increase of 17.09 million paying customers in Q1 FY22 compared to 15.83 million in Q1 FY21.
• Robust Bottom Line: Due to a modest rise in operating expenditures and greater sales, the business reported a net income of USD 79.7 million in Q1 FY22 compared to USD 47.6 million in Q1 FY21, resulting in better operating income and improved performance EBITDA margins.
• Strong Cash Position: In Q1 FY22, operating activities generated USD 141.4 million in net cash, compared to USD 115.7 million in Q1 FY21. In Q1 FY22, free cash flow was USD 130.7 million vs USD 108.8 million in Q1 FY21, indicating a larger margin of safety.

Key Risks:

• Voting Concentration Risk: Each share of DBX's Class B common stock has ten votes, but each share of its Class A common stock has just one vote. Together with Mr Houston, the company's directors, executive officers, and other major holders control 83.41% of the voting power as of March 31, 2022. (Co-founder and CEO). This limits other shareholders' capacity to influence business choices.
• Competition Risk: DBX competes in the highly competitive Application software market, including well-known competitors like Apple, Google, Amazon, and Microsoft, putting pricing pressure on the company. If the current trend continues, the company's finances may suffer.

Long Term Target Model:

(Source: Company Presentation for Q1 FY22)

Valuation Methodology: EV/Sales Multiple based Relative Valuation

(Source: Analysis by Kalkine Group)

*% Premium/(Discount) is based on our assessment of the company's FY1 trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.  

Stock Recommendation:

DBX's stock price has fallen 34.08% in the past nine months and is leaning towards the lower of its 52-week range of USD 33.00 to USD 19.32. We have valued the stock using the EV/Sales multiple-based relative valuation methodology and arrived at a target price of USD 24.33.

DBX has increased its user retention and profitability and also shared a long-term target model. Based on continuous revenue growth, strong net margins, a large cash position, the business model, associated risks, and current valuation, we recommend a "Buy" rating on the stock at the closing market price of USD 20.17 as of May 20, 2022.

DBX’s 1 Year Technical Price Chart (as of May 20, 2022). Source: REFINITIV, Analysis by Kalkine Group

Technical Summary Analysis

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

Note 1: The reference data in this report has been partly sourced from REFINITIV.  

Note 2: Investment decision should be made depending on the investors' appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the valuation has been achieved and subject to the factors discussed above. 

Note 3: The report publishing date is as per the Pacific Time Zone.

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