Company Overview: Dropbox Inc., is an online company that provides online file storage and sharing services. The Company provides a Dropbox collaboration platform, which enables users to create, access, organize, share, collaborate and secure the content. Its Dropbox paper allow users to co-author content, tag others, assign tasks with due dates, embed and comment on files, tables, checklists and code snippets in real-time. Its Dropbox Smart Sync enables users to access their content on their computers without taking up storage space on their local hard drives. Its Dropbox Showcase enables users to present their work to clients and business partners through a Webpage.


DBX Details

Dropbox Inc (NASDAQ: DBX), formerly known as Evenflow, Inc. and emerging as a leading global collaboration platform, was founded in 2007 and now has over 500 million registered users across 180 countries. DBX offers storage for users to share and synchronize their files, and generates revenue through paid subscriptions for additional space and business features. The baseline Dropbox Basic is offered free with 2 gigabytes of storage. DBX stock is now trading near all-time low levels and the relative strength indicator still suggests for a momentum once the market stabilizes. The group is thus expected to be an exciting technology player with focus on Application software despite the plunge seen in stock price. Dropbox is also making many strategic partnerships and the group settles in a radar with acquisition potential.

One of the world‘s leading retailers is now DBX client: DBX now has the Casino Group, one of the world‘s leading retailers as its clients. The Casino Group is a French retailer and a leader in global food retail market with over 12k stores and 220k employees across the globe. The well-known brands in the French retail market and worldwide include Leader Price, Monoprix, Spar, Franprix, Naturalia, and Cdiscount. The Casino Group now has implemented Dropbox Business under its broader strategy in an attempt to modernize and update Information Technology base. Dropbox will be initially deployed by the Casino Group for 1k employees, based at its headquarters; and then the deployment will be scaled up to other services or entities throughout the whole Casino Group.

Strategic partnership with Zoom to expand remote collaboration: DBX and Zoom Video Communications have come together under a strategic partnership for expansion of remote collaboration for both teams and users; and the two companies aim to develop a series of cross-platform features. This will boost real-time communication around shared Dropbox content and would make teamwork more effective. Further, Dropbox plans to make a strategic investment in Zoom and this will support development of deeply integrated product experiences across both the companies to help customers stay in sync. The partnership is expected to support customer discovery and adoption of products for the duo. Both companies will initially deliver two unique integrations and these will be accessible to users on Dropbox as well as Zoom surfaces. For DBX, users will have the option to start or join a Zoom Meeting while viewing and working on shared content; and this new integration is planned to be built into the existing Dropbox viewer info feature, which shows who’s accessing shared files or folders, enabling users to stay in sync with teammates and collaborators. With the integration of Zoom features into Dropbox, the users can seamlessly communicate without any disruption, and can discuss content in real-time. The users would further be able to move projects forward. During a Zoom Meeting, the users will be able to share content such as documents, slides, and images from Dropbox and display them on-screen; and the accessed content can be saved back to Dropbox from the on-screen display. For example, while a conversation occurs within a video call, Zoom users can make a reference of the shared content saved in Dropbox and then real-time changes can be communicated while data is being presented.


Performance over two years (Source: Company Reports and Thomson Reuters)

Target for Acquisition: Salesforce had made a $100mm investment at approximately $21 per share during the IPO time. Salesforce has a history of buying complimentary companies in order to develop their own platform. In order to increase their revenues, it would seem that as Dropbox complements Salesforce cloud business. Salesforce currently owns around 5mm of shares. Other potential companies that could be interested in acquiring DBX, would be any of the largest tech companies like Microsoft, Apple or Google all with whom Dropbox has existing relationships. Steve Jobs had already tried to acquire Dropbox in 2009. From that time to now, DBX has not only survived but has grown from 100 million users in 2012 to 200 million in November 2013 and to over 500 million as of now.

Building automatic text recognition: DBX is building automatic text recognition into its service so that the user can search the documents even if they are saved as images like JPEGs or PNGs. Text will also be recognised in PDF files if they contain scans or photographs of the user’s document. The user need to have one of Dropbox’s premium accounts to take advantage of the new feature. Dropbox said that over 20 billion image and PDF files have been stored on its service, with between 10 and 20 percent of these consisting of photos of documents. The company has previously used similar optical character recognition technology to scan text from its document scanner app, but this functionality will work on the user’s existing files, regardless of how they were added originally. The new feature works with English text and is available now to Dropbox Business Advanced and Enterprise users, and is planned to be available to Dropbox Professional subscribers in the coming months. 


Second Quarter 2018 Performance (Source: Company Reports)

Robust Performance in the Second Quarter 2018: DBX in the second quarter of FY 18 has posted better than expected results and beaten the analysts’ estimates. The company has delivered the adjusted earnings per share of 11 cents, beating the analysts’ estimates for the adjusted earnings per share of 6 cents. The company had reported the adjusted revenue growth of 27 percent to $339.2 million in the second quarter of FY 18, beating the analysts’ estimates for revenue of $330.9 million. The revenue growth was almost in line with the 28% year-over-year revenue growth DBX had posted in the first quarter but sequentially, the quarterly revenue grew up 7%. During the second quarter 2018, paying users had totaled 11.9 million, as compared to 9.9 million for the same period last year. Average revenue per paying user was $116.66 in the second quarter, as compared to $111.19 for the same period last year. The company's ARPU in the second quarter increased by 4.9% to $116.66 year over year, and has beaten the analysts’ expectations of $113.95. This also shows an acceleration from the 3.2% year-over-year growth Dropbox saw in the metric in the first quarter. The company had recently introduced plans that offered bigger storage at higher prices, which led to a higher average revenue per user (ARPU) as more individual and corporate clients signed up for it. Dropbox paying subscribers grew 20 percent to 11.9 million at the end of June and has beaten the average analyst estimate of 11.73 million. Moreover, the company's second-quarter non-GAAP operating margin is up significantly to 14.1% from 8% in the year-ago quarter, and it has beaten the management's guidance range for non-GAAP operating margin to be in the range of 9% and 10%. Furthermore, reflecting how DBX's business model benefits from improved scale, the company's non-GAAP gross margin has expanded from 66.7% in the year-ago quarter to 74.5%. GAAP gross margin similarly posted growth from 65.4% to 73.6%. Overall, in the second quarter, DBX non-GAAP net income rose 140% year over year to $48 million. On a GAAP basis, DBX net loss has narrowed from a loss of $26.8 million in the year-ago quarter to a loss of $4.1 million in the second quarter of 2018. Free cash flow, or cash from operations minus capital expenditures, rose from $82.4 million in the prior-year quarter to $102.2 million. Additionally, at the end of the second quarter of 2018, the cash, cash equivalents and short-term investments were $981.8 million.

Future Outlook: For the third quarter of 2018, DBX expects revenue to be in the range of $350 million and $353 million, which is better than the analysts’ expectation for revenue of $345.9 million. In the third quarter, the operating margin is expected to be 8% on the back of planned increases in infrastructure investments, and timing of certain marketing and hiring expenses. The company has raised its full-year 2018 sales forecast to $1.372 billion, from its previous top-end estimate of $1.355 billion. For FY 18, the free cash flow is expected to be in the range of $340 - $350 million. The company has also raised the operating margin forecasts by 50bps. 2018 fully diluted shares is expected to be in the range of 411 to 416 million shares.


FY 18 Guidance (Source: Company Reports)

Stock Recommendation: Dropbox has exceeded the Wall Street expectations in both first and second quarters. The group has added various product features to its user interface and worked on its infrastructure that collectively helped driving a 30% free cash flow margin. DBX for the third quarter is expected to report $0.06 EPS around November 08, 2018. DBX’s profit is estimated to be around early double digits (millions). DBX is trading at level of A$21.99, and has support at $ 21.5 and resistance around $23. DBX stock can witness an upside in lower double digits (%). We give a “Buy” on DBX at the current price of $ 21.99, down 5.86% as at October 24, 2018 with equity market wipeout at broad level, while the stock has been in an oversold territory.
 

DBX Daily Chart (Source: Thomson Reuters)

 
Disclaimer

The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. Kalkine.com.au and associated websites are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376). The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation. Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product. The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations.