Dropbox: Still Undervalued

seekingalpha2021-04-20

Summary Dropbox has been undervalued for some time due to competition worries and quickly decelerating growth rates. Growth rates continue to decelerate, but the company is still demonstrating linear...

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精彩评论

Marcus1993
2021-04-20
Marcus1993
Wow
gabrielteo
2021-04-20
gabrielteo
Right......
- tralala:
  [What]
jaswsf
2021-04-20
jaswsf
To in[开心]
Weichao
2021-04-20
Weichao
O
Yifeishan
2021-04-20
Yifeishan
Like and comment pls
- ST2021:
  ok
- MisterPanda:
  like and comment
- 我是Apes:
  Like and comment too
- Yifeishan:
  done! reply me too
- Yifeishan:
  done!
Zenpest
2021-04-20
Zenpest
Sad

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The forgotten tech IPO of 2018 saw its share price deteriorate quickly after reporting decelerating revenue growth and stiff competition from Big-Tech firms such as Amazon(NASDAQ:AMZN), Google(NASDAQ:GOOG)(NASDAQ:GOOGL), and Microsoft(NASDAQ:MSFT). While some growth investors may have written the stock off, its given valuation in today's market frenzy around technology companies simply cannot be ignored.\nThe cloud storage platform offers file synchronization, infrastructure modernization, and workflow optimization to enhance team collaboration and innovates its ecosystem to continue competing in a gigantic (and growing) market. That said, the company continues to deliver growth in all relevant metrics, but most importantly, is quickly improving its profitability. Dropbox is turning into a free cash flow machine with long-term targets of reaching $1 billion in free cash flow. Moreover, considering its market cap of just $10.6 billion and a competitive position in the ever-growing cloud market, Dropbox may be on the radar for an acquisition, which would cause its share price to surge.\nStill Growing\nDropbox shares fell roughly 4% after the company reported a $345 million loss in its fourth-quarter earnings due to a one-time $400 million real-estate charge as it fully transitioned to remote work. However, excluding the charge, Dropbox actually beat both earnings and revenue estimates. Here, the company reported revenue of $504 million, up by 13% year-over-year. Total average recurring revenue (ARR) grew by 12% to $2.022 billion, while total revenue for the year increased by 15% to $1.91 billion.\nExcluding the impairment charges, Dropbox posted a Non-GAPP Income of $391 million, compared to $207 million in 2019. Dropbox also reported strong free cash flow of $490 million, $100 million higher than in the year prior. Gross margins further improved by 3% year-over, reaching 78.3%.\n\n 2020 was a transformational year for Dropbox and I’m proud of the team for their resilience and focus in addressing our customers’ evolving needsl said Dropbox. We ended the year with strong margin expansion, free cash flow, and more than $2B in ARR as we continued to make progress toward our long-term financial targets. Going into 2021, we’re focused on executing against our strategy and building essential products for the new era of distributed work.” - Co-founder and Chief Executive OfficerDrew Houston\n\nSource: Dropbox IR\nThe main bear thesis on Dropbox has been evolving around the lingering competition from large players such as Amazon, Google, Microsoft, etc., leading to stagnating user numbers. Although revenue growth continues to decelerate, the company is still experiencing a linear growth trajectory in all relevant metrics. Here, Dropbox continues to successfully convert paying users to premium plans, growing its paid user base by another 1.17 million YoY. While this may be a slowdown from the year prior, when it added 1.6 million users, it is nowhere near saturation yet.\nDropbox also continues to grow its average revenue per user, from $123 to $128.5. Even if Dropbox were to stop growing its user figures, it can still grow revenues by monetizing its existing user base. That said, ARR increased by $200 million, compared to an addition of $300 million in the year prior. Looking at annual revenues, Dropbox added $250 million in high-margin revenue in 2020, just shy of the $270 million revenue addition during 2018-2019.\nCheap Valuation\nDropbox's valuation at current levels is a steal: At $26 per share, Dropbox trades at a 1-year forward price to sales of just 4.6, significantly lower than other SaaS stocks in the space. Here, Okta(NASDAQ:OKTA)and Twilio(NYSE:TWLO)trade at over 20 times Price to Sales, while Workday(NASDAQ:WDAY)has a 1-year forward P/S of 10. It is also cheaper than Salesforce(NYSE:CRM), which appears undervalued regarding its growth aspects.\nData by YCharts\nYes, Dropbox is not the strongest growth story in relation to Twilio and Okta, but what lacks in growth makes up for strong profitability. That said, Dropbox is trading at a forward P/E of just 20.6x, significantly lower than the Internet - Services industry's average P/E of 31.94x. Dropbox is also a free cash flow machine, with long-term targets of generating $1 billion in annual free cash flow. I believe this target may realistically be achievable, considering it reached nearly $500 million in free cash flow this year.\nAnalysts expect Dropbox's revenue to reach $2.75 billion by 2025 and annual net income of around $900 million. This would translate into a P/E of just 12x, assuming the share price stays at current levels. To make sure this won't be the case, the company will help investors out a little bit through a $1 billion stock repurchase program.\nIt is also likely that Dropbox's current valuation has raised awareness of other tech companies interested in a strategic acquisition to gain market share in a competitive industry. Dominating Tech companies such as Microsoft, Amazon, Facebook(NASDAQ:FB), Google, etc., can easily afford to acquire Dropbox, which would cause its shares to surge. Management is probably well aware that Dropbox is currently at least 30% undervalued, so a potential acquisition would likely not occur at under $20 per share. For now, Dropbox continues to invest in growth, making strategic acquisitions including HelloSign and DocSend in order to build an end-to-end platform. DocSend has amassed over 17,000 businesses since its inception in 2013 and allows businesses to have one destination to manage the entire lifecycle of a document.\nOn the other hand, the $240 million acquisition of e-signature HelloSign also allows businesses to develop and securely sign contracts while keeping the entire workflow in the Dropbox ecosystem without having to switch. These tools further add stickiness to its platform, which leads to greater customer dependence, raising Dropbox's pricing power.\nIt is also worth mentioning that Dropbox has beaten both revenue and earnings estimates in the last four quarters, meaning that it may outperform the given analyst predictions in the future. If Dropbox achieves to accelerate its revenue growth again, due to its acquisitions and extensive marketing efforts, its given valuation would skyrocket. At this point, it would be reevaluated as a growth stock and measured on a P/S basis. Although this scenario is rather unlikely, it is certainly possible due to cyclical shifts in trends in software platforms. Even in the more likely scenario of continuous decelerating growth rates, Dropbox has massive upside potential.\nTakeaways\nThere is not much more to say; Dropbox remains substantially undervalued with significant upside potential in the long-term and may be on the radar for a possible acquisition. Dropbox continues to invest in its platform by making strategic acquisitions to improve its ecosystem in a massive addressable market that is expected to reach $250 billion by 2027, due to the adaptation of remote work. Dropbox has been feeling the effects of increased competition, losing market share to larger competitors, but is still growing its user base, which is reflected in double-digit revenue growth that is set to last at least until 2022. Most importantly, the company remains extremely attractively valued at just 20x forward earnings, so long-term investors might be rewarded.\nUndervalued Growth Launching\nThanks for reading! Soon, I will be launching a Marketplace investment service, \"Undervalued Growth,\" where you can gain access to my entire portfolio, watchlist, and research. The service concentrates on asymmetrical return opportunities by finding the most undervalued and underfollowed growth companies in the market. The goal is to build an interactive investment community where every member can express their own ideas and thoughts while investing in exciting 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in[开心]&nbsp;","listText":"To in[开心]&nbsp;","text":"To in[开心]","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":1,"commentSize":0,"repostSize":0,"link":"https://laohu8.com/post/371976240","repostId":1188377415,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"CN"},{"id":371978616,"gmtCreate":1618906945035,"gmtModify":1634289997199,"author":{"id":"3572682061977022","authorId":"3572682061977022","name":"Weichao","avatar":"https://static.laohu8.com/default-avatar.jpg","vip":1,"crmLevel":2,"crmLevelSwitch":0,"idStr":"3572682061977022","authorIdStr":"3572682061977022"},"htmlText":"O","listText":"O","text":"O","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":2,"commentSize":0,"repostSize":0,"link":"https://laohu8.com/post/371978616","repostId":1188377415,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":371970363,"gmtCreate":1618906727352,"gmtModify":1634289999645,"author":{"id":"3566257864357844","authorId":"3566257864357844","name":"Yifeishan","avatar":"https://static.tigerbbs.com/e3dc4eb9d9c49db2bb1b031129b6e830","vip":1,"crmLevel":5,"crmLevelSwitch":0,"idStr":"3566257864357844","authorIdStr":"3566257864357844"},"htmlText":"Like 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