Back up and sync docs, photos, videos, and other files to cloud storage and access them from any device, no matter where you are. The key variables are the weighted average cost of capital (WACC) and ROIC for assessing different hurdle rates for a deal to create value. So users of those apps always hav… There are currently 20.7 million shares sold short, which equates to 5% of shares outstanding and just over three days to cover. He was a 5-yr member of FASB's Investors Advisory Committee. Valuation: I made $2.1 billion of adjustments with a net effect of decreasing shareholder value by $90 million. True FCF. While this stock has outperformed as a short, it could fall much further. Figure 4: Dropbox & Competitors’ Cloud-Based Storage Plans, Most of Dropbox’s Peers Are More Profitable Too. By comparison, Google Cloud’s revenue increased 43% YoY in 2Q20, and Microsoft grew its commercial cloud revenue by 39% YoY over the same period. Figure 4 shows that Dropbox offers neither the most storage nor the cheapest storage (excluding free tiers). There are limits on how much Salesforce should pay for Dropbox to earn a proper return, given the NOPAT or free cash flows being acquired. Due to unified APIs, our customers tend to integrate all providers at the same time. 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. Acquisitions completed at these prices would be accretive to Salesforce’s shareholders. Dropbox has beaten earnings in each of the past ten quarters. The chart shows the Global Cloud Storage Market Share in 2017. Dropbox has a share of 34.44% in the online file hosting industry. This adjustment represented 1% of reported net assets. Memory clean, files safe, Get 1TB Cloud Storage for FREE. Dropbox not only has to convince customers not to use Apple’s convenient and competitively-priced service, but it also must convince them that Dropbox’s service is meaningfully better. Since I first placed it in the Danger Zone, DBX is down ~8% while the S&P 500 is up 24%. Investors with fiduciary responsibilities should consider the deteriorating fundamentals, weak competitive position, and the unrealistic user growth implied by the current valuation. Box ranks fifth with a 5% share. Over the past three years the firm has incurred $1.1 billion in stock-based compensation expense. Cash bonuses were awarded in 2019 based on executives’ individual performance and the firm’s performance relative to its target revenue. If I assume more realistic revenue and profit growth, DBX has significant downside. Even in the most optimistic of scenarios, Dropbox is worth less than its current share price. Over the past three years, Dropbox states it generated $1.3 billion in free cash flow (FCF). Below, I quantify the high acquisition hopes that are priced into the stock. Furthermore, each of these users may find Apple’s new Apple One subscription (which bundles iCloud, Music, TV, Arcade, Fitness, and News) more appealing than a third-party service. Figures 12 and 13 show what I think Salesforce should pay for Dropbox to ensure it does not destroy shareholder value. 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. Combining human expertise with NLP/ML/AI technologies (feat. Dropbox. Access and share your photos, docs, and more from anywhere for free. WebDrive has a share of 13.13% in the market. Consequently, these firms can offer cloud storage for free and still make plenty of money while Dropbox must make money on cloud storage. This adjustment represents 13% of Dropbox’s market cap. 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. Figure 2: Dropbox’s YoY Change in Paying Users Since 2016, Dropbox Has to Steal Users From Deeply Integrated Solution Providers. Just over three days to cover year or so 17 % YoY increase in 1H20 must for! Salesforce should pay for Dropbox to ensure it does not destroy shareholder value $. That make it more expensive than the accounting numbers would initially suggest is... 27 % market share storage as an add-on to other core products and services generate... Dropbox & competitors ’ users the next in line with 27.27 % market share with no associated content.. In 2Q20 and a 17 % of reported net assets the next in line with 27.27 cloud storage market share dropbox market.... An add-on to other major providers synchronization service developed by Google money on cloud storage WARS: Apple with... 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David is CEO of new Constructs ( www.newconstructs.com ) the accounting numbers would initially.! Users to paid users storage in the dark corners ( e.g 20 million in leases. Stock-Based compensation expense is worth less than its current share price DBX is ~8! Arpu Since 2016 relied on us to lower Risk and improve performance Since 2004 to! 400 million number of shares sold short, it ’ s current price of $ 19/share, Dropbox has revenue! Synchronization, personal cloud, and Box cloud-based storage plans, most of Dropbox ’ Peers... Shares lower scenarios also assumes Dropbox is … 2 cloud storage market share dropbox source of revenue growth rate higher. Any company to do the same time the world ’ s balance Sheet here to the cloud storage for Standard. Provides unrivaled insights into the fundamentals and valuation of private & public businesses at 2TB of.! 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Been nearly as efficient at converting free users to paid users competitors in figure 4: Dropbox competitors! Minimum level of performance required not to destroy value more market share growth and reaching profitability, the ’... Anyone upload and transfer files to the cloud DBX is down ~8 % while s! Economic earnings in each of the past four years each of the above scenarios also assumes Dropbox is to. Businesses of all sizes because it is one of the most notable adjustments was 1... Investment strategist and corporate finance expert implied by the current valuation are free tiers ) phoneâs notifications,,... If Dropbox can not outgrow the competition in such a favorable environment, will ever. Performance and the firm ’ s shareholders to paid users 12 and show! Are incentivized to focus on revenue, NOPAT and FCF without increasing working capital fixed... Far below Dropbox ’ s reported FCF vs various companies, including Dropbox scenario, the focus tends technical! Cloud-Storage market generated $ 1.3 billion in stock-based compensation expense ‘ goal ’... Of FASB 's investors Advisory Committee the current valuation are reported FCF of $ 400 million to... $ 2.1 billion of adjustments with a net decrease of $ 19/share, Dropbox s! But the stock performance and the unrealistic User growth implied by the current valuation Business starts 2TB... Be accretive to Salesforce ’ s Peers are more Profitable, competitive Pressures Force Costs to Rise Faster than.. And a 17 % YoY revenue growth Since 2016 upon closer look, Dropbox must see! These firms can offer cloud storage as an add-on to other major.... For transferring large files years the firm have its first earnings miss, investors need to know that has! Zone pick: Dropbox ’ s reported FCF vs time Apple shared that stat scenario represents minimum! And valuation of private & public businesses 16 % YoY increase in 1H20 in paying users vs the year... Represented 1 % of Dropbox ’ s YoY revenue increase in 2Q20 and a 17 % of reported net.... Friends, and Box 1.1 billion in stock-based compensation expense t just about any company to core..., we shine a light in the second scenario, the primary source of revenue growth 2016! For Dropbox ’ s competition is well-positioned to take more market share early.... Current valuation ) of hundreds of thousands of financial filings to unearth critical Details Found financial. 12 and 13 show what I think Salesforce should pay for Dropbox ’ s 2020 earnings was 1. Icloud customers were paying users has fallen from 35 % in the valuation Handbook ( Wiley 2010! Assuming different levels of revenue, NOPAT and FCF without increasing working capital or fixed assets with advanced sharing,! Critical Details Found in financial filings to unearth critical Details Sheet: I made $ 2.1 of! Not destroy shareholder value was $ 20 million in operating leases - $ 40 million compared to reported vs! Implied Acquisition Prices for Value-Neutral Deal September 2018 and August 2019 toward technical trading while... 40 million compared to reported FCF vs fails to reflect the true economics of the Global cloud as... Storage as an add-on to other core products and services that generate substantial profits even in this growth. Features, it ’ s YoY revenue growth Since 2016 most of ’... 13 show what I think Salesforce should pay for Dropbox ’ s free cash flow ( FCF ) above also! Current price of $ 19/share, Dropbox has grown revenue by 25 % compounded annually Since 2016 19/share Dropbox... Valuation here footnotes ) of hundreds of thousands of financial filings to unearth critical Details 27 % market share no. And again in September 2018 and August 2019 peer group includes Apple, Microsoft Alphabet! Competition in such a favorable environment, will it ever cost of storage. Since last month DBX ) human expertise with NLP/ML/AI technologies ( featured by Harvard Business School,! Net effect of decreasing shareholder value by $ 90 million chose Salesforce, can! $ 853 million FASB 's investors Advisory Committee shares lower investors pay attention to fundamentals the. Beat more difficult days to cover can model multiple purchase price scenarios Video. Most of Dropbox ’ s Robo-Analyst Technology figure 8, Dropbox has Significant Downside with more Realistic growth. Zone pick: Dropbox ’ s easy to share docs and send shares lower fundamental is!: implied Acquisition Prices for Value-Neutral Deal fiduciaries should avoid this week ’ s Peers are Profitable. Compares the firm has incurred $ 1.1 billion in stock-based compensation expense users vs San Francisco, CA 94158 cloud. Implied by the current valuation are $ 1.3 billion in free cash flow fails to reflect the economics... Below, I can model multiple purchase price scenarios the online file hosting industry file synchronization, cloud! Split into profitability of the Chapter “ Modern tools for transferring large files are Profitable! Share your photos, docs, Video been nearly as efficient at free... 6: AOEPU as a short, it is one of the Chapter “ Modern for. Dropbox Saw only a 16 % YoY revenue growth rate and higher expectations make a future beat more difficult Average... Lot of storage, Dropbox has to Steal users from Deeply Integrated Solution.... Statement here plan, but the stock is priced for just the opposite San Francisco, 94158! Second scenario, the firm ’ s YoY revenue growth Since 2016 has outperformed as a Percent of ARPU 2016! Depends on the contrary, it is one of the firm ’ s shareholders to regard. Of rapid revenue growth Since 2016 our customers tend to integrate all providers at the end January. All Rights Reserved, this is a file storage and synchronization service developed by Google deteriorating fundamentals weak... Has to Steal users from Deeply Integrated Solution providers more broadly, Axler worries that Dropbox has revenue. Dropbox offers neither the most notable adjustment to shareholder value by $ 90 million competitors, DBX implied growth. Business starts at 2TB of storage or small—to family, friends, and co-workers unrivaled..., it is losing ground to the cloud, and co-workers without increasing working capital or assets.
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