Why This Analyst Is Modeling For 30% Upside In Dropbox

Dropbox, Inc. DBX’s broad appeal, compelling conversion opportunity and high margins give the stock compelling upside, according to KeyBanc Capital Markets. 

The Analyst

Rob Owens of KeyBanc Capital Markets initiated coverage on Dropbox with an Overweight rating and $40 price target, implying  30-percent projected upside.

The Thesis

Dropbox has achieved a $1-billion revenue run rate in only two fiscal years, faster than any SaaS company, Owens said in a Tuesday note. The company’s growth trajectory is largely made possible by the broad appeal of the company’s “highly intuitive” platform, he said. 

“The company sees a $50-billion opportunity to address increasingly disparate content silos, fragmented legacy productivity tools and the rise of mobile workforces." 

Among its base of 500 million free users, Dropbox has identified more than 300 million "high-value" targets that present a promising conversion opportunity, the analyst said.

Dropbox’s gross margin expanded from 33 percent in 2015 to 71 percent in 2017, made possible by company-owned infrastructure that stores over 90 percent of its user content, Owens said.

“Given that Dropbox's infrastructure stores the vast majority of user data, the company's contribution margin exceeds that of software companies using third-party cloud vendors.”

Price Action

At the time of publication, shares of Dropbox were trading up 0.21 percent at $29.08. 

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Photo courtesy of Dropbox.