Dropbox Inc: A Bullish 50% Breakout May Be Setting Up

Dropbox Inc Making Its Path in Cloud Workplace Collaboration

The pandemic has driven up many cloud enterprise platform stocks as people have shifted to working at home. But while the shift will likely not be permanent, there are still long-term opportunities in these workplace stocks. Take the case of Dropbox Inc (NASDAQ:DBX), a widely used player in the cloud workplace collaboration space.

DBX stock debuted in June 2018 to excitement, trading as high as $43.50, but it has declined to the $20.00 level and is searching for direction.

While the cloud workplace collaboration space is garnering incredible attention during the pandemic, Dropbox stock has underperformed.

My bull case for Dropbox Inc is supported by its over 600 million registered users in over 180 countries.

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The key for Dropbox is its ability to innovate in an extremely competitive space and convert free users into paid subscribers.

The chart shows DBX stock rallying in a strong, V-shaped recovery out of its March low. Dropbox stock has paused, but we are seeing an ascending symmetrical triangle that could result in DBX stock breaking away from trendline resistance.

Chart courtesy of www.StockCharts.com

My immediate targets for Dropbox stock are $24.00 and $30.00. Success here could see DBX stock move back up towards $35.00.

Strong Revenue Growth and Reasonable Valuation Bullish for DBX Stock

Dropbox Inc has returned strong annual double-digit revenue growth. Revenues increased 175% from 2015 to 2019, to a record $1.7 billion.

Fiscal Year Revenue (Millions) Growth
2015 $603.8 N/A
2016 $844.8 39.90%
2017 $1,110 31.00%
2018 $1,390 25.70%
2019 $1,660 19.40%

(Source: “Dropbox Inc.,” MarketWatch, last accessed October 16, 2020.)

But given the higher revenue base, the rate of growth is expected to moderate for DBX, which is something you would expect.

Revenues are estimated to grow 14.4% to $1.9 billion this year, followed by 10.9% to $2.1 billion in 2021. (Source: “Dropbox, Inc. (DBX),” Yahoo! Finance, last accessed October 16, 2020.)

Dropbox delivered positive earnings before interest, taxes, depreciation, and amortization (EBITDA) in 2017 and 2019, but will need consistency.

Fiscal Year EBITDA (Millions) Growth
2015 -$156.7 N/A
2016 $2.4 98.50%
2017 $167.5 2912.50%
2018 -$327.2 -584.70%
2019 $94.0 128.70%

(Source: MarketWatch, op. cit.)

The company has yet to be profitable based on generally accepted accounting principles (GAAP), but the losses have narrowed.

Fiscal Year GAAP Diluted EPS Growth
2015 -$0.82 N/A
2016 -$0.53 35.50%
2017 -$0.28 46.90%
2018 -$1.35 -380.90%
2019 -$0.13 90.50%

(Source: MarketWatch, op. cit.)

On an adjusted basis, Dropbox is profitable, and the estimates have been rising. DBX earned an adjusted $0.50 per diluted share in 2019, with estimates calling for $0.78 per diluted share this year, followed by $0.91 and as high as $1.11 per diluted share in 2021. At the high estimate, Dropbox stock would trade at a reasonable 17.96 times. (Source: Yahoo! Finance, op. cit.)

Dropbox has also managed to deliver positive free cash flow (FCF) in the last four years to a record $392.4 million in 2019.

Fiscal Year FCF (Millions) Growth
2015 -$63.9 N/A
2016 $137.4 315.00%
2017 $305.0 121.90%
2018 $362.0 18.70%
2019 $392.4 8.40%

(Source: MarketWatch, op. cit.)

Analyst Take

Some investors are worried about the competitive market for Dropbox, but if the company can deliver, we would expect DBX stock to rally.

Insiders are bullish. Over the last six months, insiders added 31.42 million shares, while selling only 811,950 DBX shares. (Source: Yahoo! Finance, op. cit.)