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Dropbox should link executive compensation with improving ROIC, which is directly correlated with creating shareholder value, so shareholders’ interests are properly aligned with executives’. This paper compares our analytics on a mega cap company to other major providers. New Constructs provides unrivaled insights into the fundamentals and valuation of private & public businesses. This scenario represents the minimum level of performance required not to destroy value. Dropbox’s net operating profit after-tax (NOPAT) margin of 2% is well below the market-cap-weighted peer group average margin of 21%. 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”. Microsoft one drive is at 12.12%. 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 lets anyone upload and transfer files to the cloud, and share them with anyone. 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. The future for cloud-based storage provider Dropbox is murky at best, as competition is well-positioned to take more market share. Its 600 million users must account for a good chunk of the world’s knowledge workers, and now Dropbox is … Elite money managers, advisors and institutions have relied on us to lower risk and improve performance since 2004. See our client testimonials. No other competitors claimed more than 4% of the field. There are currently 20.7 million shares sold short, which equates to 5% of shares outstanding and just over three days to cover. Paper is a collaborative workspace that helps teams create and share early ideas. The cost of cloud storage depends on the amount of space you actually need. 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. Its share price DBX is down ~8% while the S&P 500 is up 24% over the last year or so. Figure 1: Dropbox’s YoY Revenue Growth Since 2016. Combining human expertise with NLP/ML/AI technologies (feat. 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. This assumption is highly unlikely but allows us to create best-case scenarios that demonstrate how high expectations embedded in the current valuation are. Launched on April 24, 2012, Google Drive allows users to store files in the cloud, synchronize files across devices, and share … 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. The other players boasting a double-digit usage share were Dropbox with 17%, Amazon Cloud Drive with 15% and Google Drive with 10%. 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). Valuation: I made $2.1 billion of adjustments with a net effect of decreasing shareholder value by $90 million. New Constructs provides unrivaled insights into the fundamentals and valuation of private & public businesses. Over the TTM, the firm’s true FCF is -$40 million compared to reported FCF of $400 million. 2. Figure 2: Dropbox’s YoY Change in Paying Users Since 2016, Dropbox Has to Steal Users From Deeply Integrated Solution Providers. Each of the above scenarios also assumes Dropbox is able to grow revenue, NOPAT and FCF without increasing working capital or fixed assets. 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. footnotes) of hundreds of thousands of financial filings to unearth critical details. The COVID-19 pandemic has significantly changed how organizations work. Box ranks fifth with a 5% share. Additionally, Dropbox has not been nearly as efficient at converting free users to paid users. 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). So users of those apps always hav… 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 (DBX) is a pioneer of cloud storage. WebDrive has a share of 13.13% in the market. 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%). 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. 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. With our CloudRail API Integration Solution we help developers to connect to various APIs much faster. Since I first placed it in the Danger Zone, DBX is down ~8% while the S&P 500 is up 24%. David is CEO of New Constructs (www.newconstructs.com). Dropbox Business starts at 2TB of storage for the Standard plan, but Advanced and Enterprise plans receive unlimited storage in the cloud. MEGA is Cloud Storage with Powerful Always-On Privacy. Consequently, these firms can offer cloud storage for free and still make plenty of money while Dropbox must make money on cloud storage. Decline of Dropbox . Dropbox’s paying users, the primary source of revenue, are growing much more slowly too. More broadly, Axler worries that Dropbox has saturated its cloud-storage market. 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. Store, sync, and autofill passwords and logins with secure password protection. 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%. After adjusting for all liabilities, I can model multiple purchase price scenarios. 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. 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. 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%. For those who don’t need a lot of storage, Dropbox Basic is a free plan with 2 GB of storage. Dropbox cloud storage offers a range of plans that uniquely meet personal, small and large business plan needs – from 2 TB to unlimited space. Dropbox, Inc. And with advanced sharing features, it’s easy to share docs and send files—large or small—to family, friends, and co-workers. He was a 5-yr member of FASB's Investors Advisory Committee. 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. 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. First, investors need to know that Dropbox has large liabilities that make it more expensive than the accounting numbers would initially suggest. Per Figure 2, the YoY growth in paying users has fallen from 35% in 2016 to just 10% TTM. Because Google … And with advanced sharing features, it’s easy to share docs and send files—large or small—to family, friends, and co-workers. 20% of iCloud customers were paying users in 2018, the last time Apple shared that stat. Below, I quantify the high acquisition hopes that are priced into the stock. Instead, due to the proliferation of noise traders, the focus tends toward technical trading trends while high-quality fundamental research is overlooked. Figure 10: Dropbox’s Implied 2027 Average Paying Users vs. Figure 7 shows that while the firm’s reported FCF is trending up, Dropbox’s true FCF is moving in the opposite direction. 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. Figure 4 shows that Dropbox offers neither the most storage nor the cheapest storage (excluding free tiers). 1800 Owens St Back UP your Photos & Videos Automatically!♻️. It’s about sharing them, as well. To justify its current price of $19/share, Dropbox must: See the math behind this reverse DCF scenario. 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. 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. While core earnings[1] fell from -$58 million in 2018 to -$67 million in 2019, they rose to $17 million over the TTM. 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. 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. 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. 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. 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 has over 600 million registered users, but as of 2Q20, just 15 million (or 3% of registered users) were paying users. 44 million paying users also translates to 2.5% of the global cloud storage market share. Critical Details Found in Financial Filings by My Firm’s Robo-Analyst Technology. 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. At the end of January, the consensus estimate for Dropbox’s 2020 earnings was $0.57/share. Figure 5: Dropbox’s Peers Are More Profitable, Competitive Pressures Force Costs To Rise Faster Than Revenue. Figure 13: Implied Acquisition Prices to Create Value. Figures 12 and 13 show what I think Salesforce should pay for Dropbox to ensure it does not destroy shareholder value. 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