Over the last six months, Dropbox’s shares have sunk to $28.12, producing a disappointing 7% loss - a stark contrast to the S&P 500’s 4.5% gain. This may have investors wondering how to approach the situation.
Is there a buying opportunity in Dropbox, or does it present a risk to your portfolio? See what our analysts have to say in our full research report, it’s free.
Why Is Dropbox Not Exciting?
Even with the cheaper entry price, we're sitting this one out for now. Here are three reasons why there are better opportunities than DBX and a stock we'd rather own.
1. Billings Hit a Plateau
Billings is a non-GAAP metric that is often called “cash revenue” because it shows how much money the company has collected from customers in a certain period. This is different from revenue, which must be recognized in pieces over the length of a contract.
Over the last year, Dropbox failed to grow its billings, which came in at $636.8 million in the latest quarter. This performance was underwhelming and shows the company faced challenges in acquiring and retaining customers. It also suggests there may be increasing competition or market saturation. 
2. Revenue Projections Show Stormy Skies Ahead
Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.
Over the next 12 months, sell-side analysts expect Dropbox’s revenue to drop by 2.7%, a decrease from This projection is underwhelming and implies its products and services will see some demand headwinds.
3. Shrinking Operating Margin
Many software businesses adjust their profits for stock-based compensation (SBC), but we prioritize GAAP operating margin because SBC is a real expense used to attract and retain engineering and sales talent. This metric shows how much revenue remains after accounting for all core expenses – everything from the cost of goods sold to sales and R&D.
Looking at the trend in its profitability, Dropbox’s operating margin decreased by 3 percentage points over the last year. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability. Its operating margin for the trailing 12 months was 20.7%.
Final Judgment
Dropbox isn’t a terrible business, but it doesn’t pass our bar. Following the recent decline, the stock trades at 3.4× forward price-to-sales (or $28.12 per share). Investors with a higher risk tolerance might like the company, but we think the potential downside is too great. We're pretty confident there are superior stocks to buy right now. Let us point you toward a top digital advertising platform riding the creator economy.
Stocks We Would Buy Instead of Dropbox
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