Dropbox (DBX) stock forecast for 2021-2025: heading in the right direction
13:05, 7 April 2021
Dropbox (DBX) is a technology company that helps individuals and businesses securely store and share files with each other. Dropbox operates on the cloud, which makes a user’s files accessible online from anywhere, at any time, and on any device. Many people that aren’t familiar with the company will certainly recognise its blue logo.
Dropbox became a public company in early 2018 at $29 per share. The stock ran higher to an all-time high of around $40 per share within a few months of its public debut but has since lost all momentum.
In fact, the stock has never challenged its all-time highs and is down roughly 4% since its 2018 debut. While the stock has staged an impressive rebound over the past year and is up more than 50%, Dropbox’s stock has still underperformed the broader Nasdaq index that is up around 85% over the same one-year period.
Given the multi-years worth of underperformance and a frustrated investor base, does the latest Dropbox stock news justify buying shares at current levels?
A look at 2020 performance
Dropbox reported fourth quarter and full-year 2020 results in February. The company ended the year with more than 700 million registered users, 15.48 million of which are paying users. Revenue, free cash flow, non-GAAP gross margin, and non-GAAP operating margin grew for the third consecutive year.
Among the more closely followed metrics to better understand the Dropbox stock forecast, annual recurring revenue rose from $1.51 billion in 2018 to $1.811 billion in 2019 and $2.022 billion in 2020. Paying users improved from 12.7 million in 2018 to 14.31 million in 2019 and 15.48 million in 2020.
The average revenue per user improved from $117.64 in 2018 to $123.07 in 2019 and $128.50 in 2020.
Additional metrics to model DBX stock predictions include a four-times improvement in the percentage of paying users on premium plans from just 5% at the end of 2017 to 20% at the end of 2020.
Part of the company’s strong performance in 2020 can be attributed to new products and features that were launched to help people navigate a difficult environment amid the Covid-19 pandemic that nearly overnight changed how businesses operate. Some of the new features include Dropbox Passwords that lets users store their passwords, and Vault, an additional layer of security for customers’ important content.
The company also introduced its e-signature feature HelloSign across 21 languages to facilitate global business deals.
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Management comments on 2021 outlook
Dropbox’s management discussed its vision and outlook for 2021 during its fourth quarter conference call. While just one year forward-looking, it can still be used by investors to better evaluate their Dropbox (DBX) stock buy or sell thesis.
Dropbox management introduced three priorities for 2021 during the conference call. The first is evolving and improving its core product of helping users share content with each other. Management expects to improve its functionality, reduce friction, and make collaboration and file-sharing more seamless. These changes are expected to translate to superior activation and retention along with encouraging free members to transition to become paying members.
The second priority is investing and expanding new product launches that gained tremendous momentum during the pandemic. Most notably, the company hopes to position HelloSign to be known as the go-to solution for e-signature. Other plans include forging partnerships and integrations with other work-from-home type entities like Zoom and Webex.
Finally, management hopes to take action to help investors lift their Dropbox stock price prediction higher due to superior operating performance. Dropbox realised nine points of operating margin improvement in 2020 along with $99 million worth of incremental cash flow compared to 2019.
Dropbox (DBX) stock forecast for 2021-2025: encouraging long-term strategy
Dropbox exited 2020 in a stronger position compared to prior years as it directly addressed sudden and new needs during the pandemic. But management is looking forward several years and presented investors with a reason to believe a bullish Dropbox share price forecast is warranted.
Management explained in its fourth quarter conference a new shift in focus for 2021 and beyond. Most notably, the company will minimise opportunities that offer lower than average prices, higher acquisition costs, and/or more complex deals that require a lot of customisation. This could translate to volatility in future paying user growth metrics in the near term.
Shareholder-friendly policies also on the books for 2021 include expectations to tap out its $600 million share repurchase programme and transition to a newer $1 billion authorisation.
Over the longer term, Dropbox introduced multiple targets, including doubling annual free cash flow from $491 million in 2020 to more than $1 billion. The company expects to achieve its goals by 2024.
To help in management’s longer-term goal, Dropbox announced two separate events in early 2021 to help it grow. The first was an approximate $1.3 billion offering that will be used for general corporate purposes along with share repurchases.
The second was the completed acquisition of DocSend, a secure document sharing and analytics company. Dropbox intends to combine DocSend with HelloSign to capitalise on remote work trends, especially the growing need for securely sending business-critical documents.
FAQ
Is Dropbox stock a good buy?
Many investors and analysts have been saying for the past few years that Dropbox stock is a good buy. But the longer-term trend in shares since its IPO says otherwise.
Management laid out a compelling vision on what Dropbox stock should look like in 2025 and beyond but investors will need to see signs of progress before turning bullish.
Is Dropbox Inc a good investment?
Dropbox Inc is a good way for investors to gain exposure to a cloud company that played an important role in keeping businesses operational during a difficult time in 2020. The company has a long-term vision and management is showing its willingness to invest in growth.
According to KeyBanc Capital Markets analyst Steve Enders, investors may want to consider buying shares of rival Box Inc instead of Dropbox. The analyst noted that Box’s investments in its platform are more compelling and address the $6 billion content services platform market.
Will the Dropbox share price go up?
The short answer is maybe. Shares of Dropbox continue to trade below its IPO price so bargain hunters are at the very least paying close attention to the stock.
The ultimate trajectory of Dropbox’s stock over the coming years depends on management’s ability to leverage recent momentum and continue executing well.
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