The ‘drop’ in Dropbox’s [DBX] name is apt when it comes to its share price. Since going public in 2018, the stock has tanked 35%. And over the past 12 months, Dropbox's share price has continued to fall, slipping 29%.
Ten years ago, if you asked anyone to name a cloud file-sharing site they would have said Dropbox. Today, people are more likely to name a product like Google Drive. That's because the likes of Google [GOOG], Microsoft [MSFT] and Apple [AAPL] have essentially commoditised cloud storage, while Dropbox has failed to really develop its product.
Now Dropbox is in a precarious position and struggling for relevance. It might have been first to offer cloud file sharing, but it has been overtaken by bigger players. A mooted change in strategy could help, although this could be a case of too little, too late.
Dropbox's share price decline over the past 12 months
For Dropbox's share price, a lot hinges on Thursday's Q4 earnings. Since December the stock has been range-bound, trading between $17 and $18.5.
Can Dropbox's Q4 earnings call deliver something special to break through this level? Or are further share price drops in store?
When will Dropbox's Q4 earning results come out?
Why should investors care?
Strategy update with new COO position (finally) filled
Dropbox wants to shift from file-sharing site to digital workplace provider. Or, as Dropbox put it, become an ‘enterprise collaboration workspace provider’.
Dropbox has made its interface simpler and has introduced connectivity with other apps. Users can now connect to Google's G-Suite, Slack and other popular business apps. But positioning Dropbox as a central hub for businesses to do business, is a lofty goal.
To do this ex-Google Cloud exec Olivia Nottebohm has come on board as COO - a role that has taken over a year to fill. Nottebohm seems to already be on message, saying that “the vision of de-cluttering in a work environment is a very powerful message.”
Dropbox will also be hoping to tap into Nottebohm’s skills in selling solutions to small and medium-sized businesses. An update on how Dropbox will execute this strategy could help shareholder confidence.
A slowly melting business?
Dropbox might be hoping to turn things around, but short-seller Ben Axler, the CIO and founder of Spruce Point Capital is sceptical. He describes Dropbox as a 'slowly melting business'. Ouch.
Axler told Yahoo Finance that he sees a 25% to 60% downside risk as Dropbox's revenues continue to decline. He also questioned Dropbox's free cash flow. Ostensibly this stands at 30%. Axler thinks it's closer to 6%-7%.
Spruce Point’s research also highlighted growing churn and higher costs of acquisition as concerns.
Long-term, can Dropbox make the move from retail to enterprise? Axler seems doubtful:
“They started with retail customers, small businesses. Now, they're trying to move more into the enterprise space. And, that's a different sell. They don't have an internal salesforce. They've generally used their growth through word of mouth and forwarding a free email to a friend. That's a structurally different market."
“They don't have an internal salesforce. They've generally used their growth through word of mouth and forwarding a free email to a friend. That's a structurally different market” - Ben Axler, CIO & founder of Spruce Point Capital
What to expect in Dropbox’s Q4 earnings
Wall Street is expecting earnings to come in $0.14, up from the $0.1 seen in the same quarter last year. Revenue expectations are $443.41 million, up 18% from $375.9 million. Dropbox has form beating analyst expectations, topping forecasts in the four previous quarters. Q3 earnings came in at $0.13 a share, beating Wall Street’s $0.11 prediction.
|Operating Margin (TTM)||-5.34%|
|Quarterly Revenue Growth (YoY)||18.80%|
Dropbox share price vitals, Yahoo Finance, 18 February 2020
Of the 12 analysts tracing the share price on Yahoo Finance, just over half rate it a Strong Buy or Buy. An average 12-month share price target of $28.50 would represent a 53.8% upside on Tuesday's closing price. The last time Dropbox hit this level was August 2018.