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The chart shows the Global Cloud Storage Market Share in 2017. Back UP your Photos & Videos Automatically!♻️. Over the past three years, Dropbox states it generated $1.3 billion in free cash flow (FCF). Leading media outlets regularly feature our research. Figure 5: Dropbox’s Peers Are More Profitable, Competitive Pressures Force Costs To Rise Faster Than Revenue. Balance Sheet: I made $1.4 billion of adjustments to calculate invested capital with a net decrease of $853 million. Dropbox has beaten earnings in each of the past ten quarters. Opinions expressed by Forbes Contributors are their own. Hardware Solution For instance, the firm adds back stock-based compensation, a non-cash, but very real expense that dilutes shareholder value, to its calculation of FCF. Its share price DBX is down ~8% while the S&P 500 is up 24% over the last year or so. The future for cloud-based storage provider Dropbox is murky at best, as competition is well-positioned to take more market share. At the end of January, the consensus estimate for Dropbox’s 2020 earnings was $0.57/share. Over the past three years the firm has incurred $1.1 billion in stock-based compensation expense. Cloud storage isn’t just about uploading your files. 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%. TOP COMPETITORS OF Dropbox IN Datanyze Universe . For instance, Apple offers all of its customers 5 GB of free space through iCloud. Figure 12: Implied Acquisition Prices for Value-Neutral Deal. 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. 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. 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… Elite money managers, advisors and institutions have relied on us to lower risk and improve performance since 2004. And with advanced sharing features, it’s easy to share docs and send files—large or small—to family, friends, and co-workers. This peer group includes Apple, Microsoft, Alphabet, Amazon, and Box. 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. 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. One of the most notable adjustments was $20 million in operating leases. After adjusting for all liabilities, I can model multiple purchase price scenarios. 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). 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. Additionally, Dropbox has not been nearly as efficient at converting free users to paid users. Below, I quantify the high acquisition hopes that are priced into the stock. Dropbox saw only a 16% YoY revenue increase in 2Q20 and a 17% YoY increase in 1H20. New Constructs provides unrivaled insights into the fundamentals and valuation of private & public businesses. 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. The combination of the firm’s slowing growth rate and higher expectations make a future beat more difficult. 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 … Memory clean, files safe, Get 1TB Cloud Storage for FREE. 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. The Appendix details exactly how we stack up. No other competitors claimed more than 4% of the field. Valuation: I made $2.1 billion of adjustments with a net effect of decreasing shareholder value by $90 million. Top Competitors Websites Even in the most optimistic of scenarios, Dropbox is worth less than its current share price. Dropbox’s invested capital turns, a measure of balance sheet efficiency, ranks third out of the six companies listed in Figure 5. Inferior Offering at Higher Cost Limits Growth. 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.”. Figure 6: AOEPU as a Percent of ARPU Since 2016. Dropbox lets anyone upload and transfer files to the cloud, and share them with anyone. The cost of cloud storage depends on the amount of space you actually need. The report also revealed that cloud storage is overwhelmingly dominated by music, with about 90 percent of Apple, Amazon and Google cloud users storing music in the cloud. Dropbox cloud storage offers a range of plans that uniquely meet personal, small and large business plan needs – from 2 TB to unlimited space. 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. You can see all the adjustments made to Dropbox’s balance sheet here. So users of those apps always hav… Most of Dropbox’s competition is more profitable too. In other words, executives are incentivized to focus on revenue, with little to no regard to the profitability of the firm. Each of the above scenarios also assumes Dropbox is able to grow revenue, NOPAT and FCF without increasing working capital or fixed assets. Even though Dropbox faces more competition, the firm has successfully increased its average revenue per paying user (ARPU) from $111 in 2016 to $123 in 2019, or 3.6% compounded annually. If Dropbox cannot outgrow the competition in such a favorable environment, will it ever? Dropbox has generated negative economic earnings in each of the past four years. Instead, due to the proliferation of noise traders, the focus tends toward technical trading trends while high-quality fundamental research is overlooked. This assumption is highly unlikely but allows us to create best-case scenarios that demonstrate how high expectations embedded in the current valuation are. 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. Fiduciaries should avoid this week’s Danger Zone pick: Dropbox Inc. (DBX). 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. See our client testimonials. Each implied price is based on a ‘goal ROIC’ assuming different levels of revenue growth. 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. 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. Dropbox is popular with businesses of all sizes because it is one of the best tools for transferring large files. Dropbox has a share of 34.44% in the online file hosting industry. 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”. David is CEO of New Constructs (www.newconstructs.com). 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. 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. 20% of iCloud customers were paying users in 2018, the last time Apple shared that stat. Dropbox’s paying users, the primary source of revenue, are growing much more slowly too. 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. Acquisitions completed at these prices would be accretive to Salesforce’s shareholders. 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. 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. Consequently, these firms can offer cloud storage for free and still make plenty of money while Dropbox must make money on cloud storage. It’s about sharing them, as well. You can see all the adjustments made to Dropbox’s income statement here. Consensus estimates show that the market expects the firm’s revenue growth rate to decline from 14% in 2020 to just 10% in 2022. Dropbox (DBX) is a pioneer of cloud storage. All Rights Reserved, This is a BETA experience. Google Drive is the next in line with 27.27% market share. Cloud Storage Market Share by Region, 2017. Meanwhile, Box (BOX), a direct competitor, had ~13 million paying users out of just 71 million registered users, or 18%, as of 2Q20. Value was $ 0.57/share s balance Sheet here 17 % of reported net assets s Danger Zone:... 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