The COVID-19 pandemic has significantly changed how organizations work. No other competitors claimed more than 4% of the field. Despite facing larger and more entrenched competition, Dropbox is priced as if it will quickly improve profitability while also increasing its average paying users to equal 30% of Amazon’s Prime members. After adjusting for all liabilities, I can model multiple purchase price scenarios. There are limits on how much Salesforce should pay for Dropbox to earn a proper return, given the NOPAT or free cash flows being acquired. With COVID-19-induced disruptions forcing most businesses to adapt their operations to be more remote friendly, Dropbox was in prime position to gain market share. See what HBS & MIT Sloan professors say in the paper: “…the NC dataset provides a novel opportunity to study the properties of non-operating items disclosed in 10-Ks, and to examine the extent to which the market impounds their implications.” – page 19, “Trading strategies that exploit cross-sectional differences in firms’ transitory earnings produce abnormal returns of 7-to-10% per year.” – page 1. To further illustrate the extraordinarily high growth expectations embedded in Dropbox’s stock price, I compare Dropbox’s implied paying users to the paying users of competitors. Once you’ve downloaded the Dropbox app on your computer, simply drag and drop the files you’d like to back up into the Dropbox folder on your desktop. However, the cost per user, or average operating expense per paying user (AOEPU) has risen even faster from $85 in 2016 to $99, or 5.2% compounded annually in 2019. Despite years of rapid revenue growth and reaching profitability, the future for this cloud-based storage provider is murky at best. For this analysis, I chose Salesforce.com Inc. (CRM) as a potential acquirer of Dropbox since Dropbox already integrates with Salesforce’s cloud-based platform and such vertical integration would give Salesforce greater in-house services and access to Dropbox’s over 600 million registered users. David is CEO of New Constructs (www.newconstructs.com). Dropbox’s share of the global cloud storage market has fallen from 4.4% in 2017 to 3.6% in 2019 as more competitors enter the space and existing competition ramped up storage options. Figure 13 shows the implied values for DBX assuming Salesforce wants to achieve an ROIC on the acquisition that equals 8% and is greater than its WACC. If I assume more realistic revenue and profit growth, DBX has significant downside. Figure 7 shows that while the firm’s reported FCF is trending up, Dropbox’s true FCF is moving in the opposite direction. 44 million paying users also translates to 2.5% of the global cloud storage market share. Figure 6 illustrates that AOEPU is rising as a percent of average revenue per user and remains a significant impediment to the profitably improvements implied by the stock price, as we’ll show later. Elite money managers, advisors and institutions have relied on us to lower risk and improve performance since 2004. One of our most used categories is Cloud Storage. One of the most notable adjustments was $20 million in operating leases. Cloud Storage Market Share by Region, 2017. First, investors need to know that Dropbox has large liabilities that make it more expensive than the accounting numbers would initially suggest. Dropbox, a pioneer among cloud storage and syncing services, offers synced desktop folders for anywhere-access.Though it's comparatively pricey, unique tools like … Each implied price is based on a ‘goal ROIC’ assuming different levels of revenue growth. All Rights Reserved, This is a BETA experience. Its 600 million users must account for a good chunk of the world’s knowledge workers, and now Dropbox is … Avoid losses from using other firms’ data: “…many of the income-statement-relevant quantitative disclosures collected by NC do not appear to be easily identifiable in Compustat…” – page 13, “Core Earnings [calculated using New Constructs’ novel dataset] provides predictive power for various measures of one-year-ahead performance…that is incremental to their current-period counterparts.” – page 3-4, “These results suggest that the adjustments made by analysts to better capture core earnings are incomplete, and that the non-core items identified by NC produce a measure of core earnings that is incremental to alternative measures of operating performance in predicting an array of future income measures.”  – page 26, “An appropriate measure of accounting performance for purposes of forecasting future performance requires detailed analysis of all quantitative performance disclosures detailed in the annual report, including those reported only in the footnotes and in the MD&A.” – page 31. Figure 12 shows the implied values for DBX assuming Salesforce wants to achieve an ROIC on the acquisition that equals its WACC of 6%. Dropbox makes moving between personal, business, and enterprise-level plans easy by transferring your account to the new plan without changing file configurations.Google Drive for Business plans start at 30GB of storage per user at the Basic level, while Business and Enterprise plans give users unlimited storage with some extra features. David is a distinguished investment strategist and corporate finance expert. Box ranks fifth with a 5% share. This adjustment represents 13% of Dropbox’s market cap. Dropbox’s invested capital turns, a measure of balance sheet efficiency, ranks third out of the six companies listed in Figure 5. 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