Dropbox is at a disadvantage when it comes to competing for its competitors’ users. 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 Appendix details exactly how we stack up. Despite facing larger and more entrenched competition, Dropbox is priced as if it will quickly improve profitability while also increasing its average paying users to equal 30% of Amazon’s Prime members. In other words, executives are incentivized to focus on revenue, with little to no regard to the profitability of the firm. 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. Per Figure 8, Dropbox has grown revenue by 25% compounded annually since 2016. The future for cloud-based storage provider Dropbox is murky at best, as competition is well-positioned to take more market share. [1] My firm’s core earnings are a superior measure of profits, as demonstrated in Core Earnings: New Data & Evidence a paper by professors at Harvard Business School (HBS) & MIT Sloan. MEGA is Cloud Storage with Powerful Always-On Privacy. Cloud drive storage to save photos, music, docs, video! He is author of the Chapter “Modern Tools for Valuation” in The Valuation Handbook (Wiley Finance 2010). And with advanced sharing features, it’s easy to share docs and send files—large or small—to family, friends, and co-workers. Combining human expertise with NLP/ML/AI technologies (feat. With Dropbox as your backup solution, it’s easy to save your files to the cloud instead of using an external hard drive, flash drive, or any other remote storage device. Entrenched competition is well-positioned to take more market share, but the stock is priced for just the opposite. For this analysis, I chose Salesforce.com Inc. (CRM) as a potential acquirer of Dropbox since Dropbox already integrates with Salesforce’s cloud-based platform and such vertical integration would give Salesforce greater in-house services and access to Dropbox’s over 600 million registered users. 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. Dropbox has over 600 million registered users, but as of 2Q20, just 15 million (or 3% of registered users) were paying users. San Francisco, CA 94158, Cloud: Photo & Video Backup! 20% of iCloud customers were paying users in 2018, the last time Apple shared that stat. Dropbox saw only a 16% YoY revenue increase in 2Q20 and a 17% YoY increase in 1H20. Over the past three months, insiders have purchased 4 thousand shares and sold 99 thousand shares for a net effect of 95 thousands shares sold. David is a distinguished investment strategist and corporate finance expert. I optimistically assume that Salesforce can grow Dropbox’s revenue and NOPAT without spending any working capital or fixed assets beyond the original purchase price. Without significant increases in the margin or revenue growth assumed in this scenario, an acquisition of DBX at its current price destroys significant shareholder value. Top Leading Companies of Global Private Cloud Storage Market are Amazon Cloud Drive, Ubuntu One, Apple iCloud, Dropbox, Google Drive, Box, Microsoft SkyDrive, MediaFire, SpiderOak, Mega and others. All Rights Reserved, This is a BETA experience. Figure 3 shows some of Dropbox’s direct competitors and their number of users, who have access to a free version of what Dropbox offers. Dropbox’s paying users, the primary source of revenue, are growing much more slowly too. On The Basis Of Product, The Private Cloud Storage Market Is Primarily Split Into. I think it is difficult to make a straight-faced argument that Dropbox can maintain that level of market share with a more expensive and less integrated product. 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. THE CLOUD STORAGE WARS: APPLE LEADS WITH 27% MARKET SHARE. Because Google … In this scenario, Dropbox grows NOPAT from -$43 million in 2019 to $163 million in 2027, and the stock is worth just $7/share – a 63% downside. Consequently, these firms can offer cloud storage for free and still make plenty of money while Dropbox must make money on cloud storage. Growing registered and paying users is a serious uphill battle for Dropbox since most of its potential paying users are already customers of firms that provide the same service as Dropbox along with many other important services. The chart shows the Global Cloud Storage Market Share in 2017. Combining human expertise with NLP/ML/AI technologies (featured by Harvard Business School), we shine a light in the dark corners (e.g. Additionally, Dropbox has not been nearly as efficient at converting free users to paid users. The number of shares sold short has increased by 4% since last month. This assumption is highly unlikely but allows us to create best-case scenarios that demonstrate how high expectations embedded in the current valuation are. WebDrive has a share of 13.13% in the market. While core earnings[1] fell from -$58 million in 2018 to -$67 million in 2019, they rose to $17 million over the TTM. Dropbox, Inc. Figure 4 shows that Dropbox offers neither the most storage nor the cheapest storage (excluding free tiers). footnotes) of hundreds of thousands of financial filings to unearth critical details. 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… No other competitors claimed more than 4% of the field. Even in this best-case growth scenario, the implied value is far below Dropbox’s current price. The market also expects Dropbox to lose more market share given that the global cloud storage market is expected to grow much faster (by 22% compounded annually from 2020 to 2025). 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%. Each of the above scenarios also assumes Dropbox is able to grow revenue, NOPAT and FCF without increasing working capital or fixed assets. One of the most notable adjustments was $20 million in operating leases. 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