Dropbox, Inc.

DBX Details

Product Innovation to Lead Business Growth:Dropbox, Inc. (NASDAQ: DBX) is engaged in providing a smart workplace through cloud-based technology where users can access their necessary files and folders. The company operates across more than 180 countries with register users of more than 600 million.

Q3FY19 Operational Highlights for the Period ended 30 September:DBX declared its quarterly results, wherein the company reported total revenue at $428.2 million, up 19% on y-o-y basis. The business reported total paying users at 14 million as compared to 12.3 million in the year-ago quarter. DBX reported average revenue per user at $123.15 as compared to $118.60 in Q3FY18. On non-GAAP basis, the business reported improved gross margin at 76.7% as compared to 75.9% in the previous corresponding period. Research & development expenses stood at $172.8 million, depicting 40.4% as a percentage of revenue. The company reported a net loss of $17.0 million as compared to $5.8 million in Q3FY18. The company reported sales and marketing expenses at $108.2 million, standing at 25.3% of the total revenue in FY19, as compared to $95 million in pcp.



Balance Sheet & Cash Flow Details:DBX exited the quarter with cash and cash equivalents of $443.2 million, down from $519.3 million reported as of 31 December 2018. The company reported zero long-term debt as on Q3FY19. The business reported cash flow from operations at $149.7 million, as compared to $128 million in Q3FY18. Free cash flow stood at $102.5 million in the reported quarter down from $120 million in the year-ago quarter.
Guidance:As per the Q4FY19 guidance, the company expects revenue in the range of $442 million to $444 million. The company anticipates operating margin (Non-GAAP) to be in the range of 14% to 15%. DBX expects FY19 full-year revenue within $1,657 million - $1,659 million while Non-GAAP operating margin is expected to be ~12%. Free cash flow for the year is expected in between $375 million and $385 million, while the capital expenditure is expected within the range of $65 million - $75 million.

Valuation Methodology: Price to Book Multiple Approach

Price to Book value Based Valuation (Source: Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Stock Recommendation:The stock of DBX is quoting at $17.86 with a market capitalization of $7.417 billion. The stock is trading at the lower band of its 52-week trading range of $16.08 to $26.49. The company reported strong top-line growth with margin-expansion in Q3FY19. The business witnessed strong momentum across the new desktop application. The company intends to build the world’s first smart workspace based on a cloud application, which will help people to share their files and folders. Also, the company’s plan to transform its products and unveiling new ones, will give it a competitive advantage. Dropbox’s synergies from buyouts and robust expansion add to the positives. Considering the above factors, we have valued the stock using one relative valuation method, i.e., Price to Book multiple and arrived at a target price with lower double-digit upside in % terms. For the above valuation, we have taken the peer group – Salesforce.com (NASDAQ: CRM), VMware Inc (NASDAQ: VMW), Workday Inc (NASDAQ: WDA), etc.  Hence, we give a “Buy” rating on the stock at the current market price of $17.86 per share, up by 0.22% on 13^th January 2020.
 
 
DBX Daily Price Chart (Source: Thomson Reuters)

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