Dropbox Inc

Dropbox Inc (NASDAQ: DBX) is a US-based online Company providing services related to file sharing and storage. The Company’s collaboration platform helps users to manage the content with security.

Investment Highlights – Dropbox Inc – Hold at USD 24.82

• The Company has shown an increase in financial performance in the Q3 FY2020, with a well-positioned balance sheet and ability to upgrade and expand existing customer base.
• In the last one year, the Company delivered a substantial return of ~37.13% and delivered higher returns compared to the benchmark Index.
• As per valuation metrics, EV/Sales & Price/Earnings multiples of the Dropbox Inc are currently lower as compared to the corresponding multiples of the Software & IT Services industry. It reflects, shares are undervalued as compared to the industry.
• From the technical standpoint, shares were trading above the short-term support level of 20-day (USD 22.97) simple moving average prices, which reflects an uptrend in the stock.

Key Risks

• The Company’s operations will remain impacted due to uncertain political and economic climate for short to medium term.
• The disruptive technology trends and cybercrimes also impose a risk to the business model.

Financial Highlights – Q3 and 9M FY2020 (30 September 2020) (released on 6 November 2020)

(Source: Quarterly Report, Company Website) 

• In the third quarter and for the nine months period of the financial year 2020, driven by higher revenue from the US and International businesses, the revenue increased to $487.4 million and $1,409.8 million, respectively.
• The profitability for the period improved, reflecting higher revenue and lower expenses related to sales and marketing.
• The cash balance as on 30 September 2020 declined to $452.7 million (31 December 2019: $551.3 million). 

One Year Share Price Chart

(Source: Refinitiv, chart created by Kalkine Group)

Valuation Methodology: Price/Earnings (NTM) (Illustrative)

Conclusion

The Company has shown an improvement in financial performance in the third quarter and nine months period of the financial year 2020. Both the top-line and the bottom-line performance increased, with higher profitability margins. The liquidity position for the period declined, while the balance sheet remained well-positioned. Dropbox has a diversified customer base, and no customer is accounted for over 1% of total revenue. The Company generate above 90% of revenue from channels which are self-served. DBX operating and financial performance are impacted by the covid-19 pandemic and currency fluctuations. Presently, the company is trading near a 52-week high, raising doubts at its upside potential at current prices. The stock made a 52-week low and high of USD 14.55 and USD 25.70, respectively.

Considering the uncertainties and market dynamics, we are currently maintaining the “Hold” recommendation on Dropbox Inc at the closing price of USD 24.82 (as on 8 February 2021) and will recommend fresh buying at the right time.

Himax Technologies Inc

Himax Technologies Inc (NASDAQ: HIMX) is a provider of semiconductor solutions. The Company is engaged in the business of display driver IC (integrated circuits) and timing controllers used in consumer electronics devices.

Investment Highlights - Himax Technologies Inc – Expensive at USD 15.11

• Despite the improved performance in Q4 FY2020, the Company needs to manage operating expenses more effectively unless it will impact the financial performance in the near future.
• The Company’s debt/equity ratio in the financial year 2020 stood higher than the industry median, reflecting that the Company is more leveraged as compared to the industry.
• As per valuation metrics, EV/Sales, Price/ Cash Flow & Price/Book Value multiples of the Himax Technologies Inc are currently higher as compared to the corresponding multiples of the Semiconductors & Semiconductor Equipment industry, reflecting overstretched valuations.
• From the technical standpoint, 14-day RSI is in the overbought zone and is supporting downward movement (around 90 level), which means the stock price could decline in the short term.

Key Risks

• The Company’s operations might be impacted by the covid-19 pandemic, as it causes disruption in supply chain and availability of raw materials.
• The Company’s overall business could be impacted due to changes in government policies and regulations. 

Financial Highlights – Q4 and FY2020 (31 December 2020) (released on 4 February 2021)

(Source: Quarterly Report, Company Website) 

• In the fourth quarter and financial year 2020, the Company has delivered strong revenue growth, with 14.9% on a quarter-on-quarter basis and 32.1% on a year-on-year basis.
• The Company witnessed a strong momentum across all major business segments in the fourth quarter.
• Driven by record revenue and gross margin growth, the profitability for the period increased significantly.
• The cash balance as on 31 December 2020 increased to $184,938 thousand (31 December 2019: $101,055 thousand).

One Year Share Price Chart

(Source: Refinitiv, chart created by Kalkine Group)

Valuation Methodology: Price/Earnings (NTM) (Illustrative)

Conclusion

The Company has shown a significant increase in the fourth quarter and financial year 2020. Both the top-line and the bottom-line performance increased, with significantly higher profitability margins. In the fourth quarter, the Company delivered record revenue and profitability and was ahead of set guidance. The Company faces shortage as it entered into the financial year 2021. HIMX expects overall semiconductor industry supply to not increase significantly, while demand is expected to remain strong. Presently, the Company is trading near a 52-week high, raising doubts at its upside potential at current prices. The stock made a 52-week low and high of USD 1.73 and USD 15.16, respectively.

Based on the factors as highlighted above, we believe the stock of Himax Technologies Inc is “Expensive” at the closing price of USD 15.11 (as on 8 February 2021), with support from few catalysts needs to be evaluated at a later stage such as benefits of securing more capacity in 2021.

*All forecasted figures and Peer information have been taken from Refinitiv, Thomson Reuters.

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