About Dropbox
Founded in 2007 and headquartered in San Francisco, California, Dropbox is one of those companies that you tend to hear about a fair amount or even find yourself or your team using on occasion, and you sort of know what it is and what its purpose is, but it is sometimes a bit difficult to put it into words.
Maybe it’s just us, perhaps, however, Dropbox, broadly speaking is a technology company that is seemingly intent on allowing entities, be it classmates, professional colleagues and pretty much any other group of individuals to connect and share documents and files within Dropbox’s platform and in a matter of seconds, retrieve and open said documents.
More specifically, let’s say you and your team at the corporation you work at are working on a marketing campaign and you are in the weeds of putting together and sharing marketing drafts and other various drafts to one another.
Instead of having to constantly email each other new drafts, edits and finished products, one could simply use Dropbox, as the platform acts as a sort of central haven through which all of these documents can be shared, stored and accessed in one single file location within Dropbox.
While it is a rather clever idea and we are sure that this company has plenty of subscribers that pay for usable space on the platform (as this is one of the primary ways in which the company generates revenues, operating a sort of freemium model until a user stores up enough data where they need to start paying for more space), we personally don’t view it is as all that differentiated nor exceptional, at least in our experience(s), not to mention that the competitive landscape for this company is absolutely brutal.
As a sort of reference, other companies such as Box (how original), Google, Microsoft and plenty of other cloud storage companies offer platforms that provide essentially the exact same sort of service, at least from our eyes, and we would much rather simply transfer documents, videos and other sort of files to one another through the platform(s) we know best and that are largely free.
Frankly, the brutally competitive landscape is just one of our recurring concerns when it comes to Dropbox, as any one of these much larger, well equipped technology companies could squeeze a company such as this one until it goes out of business, that is, if they really, really want to engage in such an activity.
Sure, this is a sort of doom and gloom initial outlook, but we tend to not hide our feelings through our articles and we surely aren’t going to start doing that now.
The competitive landscape scares us, it’s as simple as that.
At any rate, we will not let this permanently get in the way of the financials and other relevant figures we are going to be presenting momentarily, however, a wise woman once told me to feel my feelings and I guess you could say I was feeling my feelings a little.
Nevertheless, perhaps the initial core numbers behind Dropbox are fantastic and it has some other defined and distinguished differentiators about itself that establish a sort of moat around itself with respect to the competition.
If this is the case, it ought to show through the numbers.
Speaking of numbers, welcome to the stock analysis party, numbers.
We have a BYOF (bring your own financials) policy.
Dropbox’s stock financials
Trading at a share price of $27.39 with an associated market capitalization of $9.47 billion as well as a prevailing price-to-earnings (P/E) ratio of 17.09 along with no regular annually distributed dividend offered to its shareholder base at the moment, things definitely aren’t off to the worst of starts with Dropbox and its stock (NASDAQ: DBX), as its shares appear to trading at a relative discount to their actual, intrinsic worth, primarily referencing its present price-to-earnings ratio standing notably below the fair value benchmark of 20, which, obviously, for a prospective, value-oriented shareholder, isn’t all that much of a bad thing.
Of course, we also understand why this company doesn’t offer its shareholders a steady annual dividend due to the nature of the technology space, requiring consistent amounts of cash on hand in order to fuel investment(s) so as to simply stay relevant, as it specifically relates to Dropbox, within the cloud storage industry.
Anything else, from our view, would be counterproductive.
Moving right along to the condition of the company’s balance sheet, Dropbox’s executive team is at the helm of around $3.1 billion in terms of total assets along with $3.4 billion in total liabilities, which, to us, at least, is somewhat worrying, given that if the company continues accruing more debt and other liabilities on its books, things could get out of hand and before you know it Dropbox could find itself in some serious financial trouble.
However, we do think that things would have to become pretty dire for that to unfold, as a lot else would have to go wrong in order for the company to find itself in that messed up of a state, however, when you maintain more total liabilities than total assets on your books, even if not by all that wide of a margin, as is the case with Dropbox, it still raises some questions in the back of our minds, especially for a larger, more established company such as this one.
Regarding the company’s income statement, Dropbox’s recent total year-over-year (YOY) revenues have been doing just fine, growing at a consistent pace, for instance, starting at almost $1.4 billion in 2018, leading up to its latest displayed revenue figure (on TD Ameritrade’s platform) of just about $2.3 billion, as reported in 2022.
Growing revenues, especially for a younger, cloud-centric technology company is a resounding positive, even if the company’s revenues haven’t been growing at all that fast of a rate, compared to some other technology firms that we have analyzed in previous stock analysis articles.
In addition to this company’s income statement, looking at some of the figures displayed on Dropbox’s cash flow statement, there has been a lot of marked short-term improval in terms of the company’s net income transitioning from negative to positive during the period between 2018 and 2022, not to mention yet another positive in that the company’s total cash from operations during the same period were positive and consistent, for the most part.
Regarding the company’s net income, specifically, it has found itself climbing from a relative low of -$485 million (2018) to a relative high of $553 million (2022), which hints to us that the firm has successfully found some ways in which it can drive costs down and cost efficiencies up along with its overall profitability simultaneously improving, which, for a company that has reportedly attracted the usually unwanted attention of activist investors to its business, is a resounding positive and we surely hope Dropbox and its executives remain committed and focused on continuing to generate an increasing amount of net income and total cash from operations in the quarters, years and decades to come.
Dropbox’s stock fundamentals
Moving right along and while on the subject of profitability, it can be found on TD Ameritrade’s platform that Dropbox’s trailing twelve month (TTM) net profit margin is tucked in away at an impressive, not so comparable rate of 22.50% to the industry’s respective average of 1.54%, largely more than likely due to this company’s intense product and service focus, evidently being on file storage, which has seemingly worked out just fine for Dropbox so far.
This is certainly a prime trait we look for in any company we set our sights on, as it speaks to their overall focus and also their simple yet profound understanding in what they are best at and maybe what they are not so good at, and they put their money where their efforts are and continue differentiating themselves from the competition.
Focus is great and Dropbox seems quite focused and sharp on the profitability front.
With respect to the company’s TTM returns on both assets and investment(s), Dropbox has outdone itself once again when brushing up against the competition’s relative figures, as, for instance, the company’s listed (also found on TD Ameritrade’s platform) TTM return on investment is marked as 33.01% to the industry’s respective average of 17.50%, nearly half that of Dropbox, heavily insinuating that the company has done an above average job at putting capital to work within the confines of the right, fruitful and profitable projects and given this track record, here’s hoping that the company leadership will not deviate from this path, much, if at all.
As a sort of reference, the company’s TTM return on assets are in a very similar state to that of its aforementioned TTM return on investment(s).
Should you buy Dropbox stock?
It is sort of strange, but to a certain degree, Dropbox is still sort of a mixed bag in our eyes.
Allow me to briefly explain.
Sure, the company’s shares (NASDAQ: DBX) are trading at a relative discount (in reference to its aforementioned present price-to-earnings ratio), its core TTM returns and profitability metrics are in excellent conditions, not to mention its cash flows and revenues in the most recent handful of years, however, its balance sheet is still not in the best shape, as it is slightly-to-moderately total liability-heavy, and while the current situation certainly isn’t dire by any means, we simply had our hopes that it would be a bit more trim and less debt-heavy.
Well, all things considered, I suppose the bag isn’t as mixed as I had thought, however, as we can still feel our feelings when it comes to the company’s debt levels.
At any rate, given the company’s TTM net profit margin, it can likely afford (at least for the time being) the debt(s) it maintains on its books, however, this still doesn’t and frankly won’t change our views regarding the company and its relative competitive landscape.
While we don’t think the company is going away or out of business anytime in the near future, we also know that behemoths such as Google could just as well be nipping away at this company’s data and file storage lunch and market share and with this perceived relatively weak moat, we feel most comfortable in offering the company’s shares (NASDAQ: DBX) a “hold” rating for the time being.
DISCLAIMER: This analysis of the aforementioned stock security is in no way to be construed, understood, or seen as formal, professional, or any other form of investment advice. We are simply expressing our opinions regarding a publicly traded entity.