Ahead Of Dropbox IPO, DA Davidson Takes Bullish Position On Cloud Storage Company

Dropbox, Inc. DBX seems to have sell-side firms lined up in its favor ahead of its IPO. The company is set to price its 36-million-share offering Friday. 

The Analyst

D.A. Davidson analyst Rishi Jaluria initiated coverage of Dropbox with a Buy rating and $22 price target.

The Thesis 

Jaluria listed four primary reasons for a bullish stance on the cloud storage company: 

• Dropbox's differentiated strategy of focusing on "word-of-the" referrals and "viral" adoption — reflected in 90 percent of total revenue being contributed by self-serve channels — is likely to keep its marketing and sales expenses relatively low, the analyst said. 
• Dropbox's revenue growth pace is the second-fastest of any software company after salesforce.com, inc. CRM. Dropbox crossed the $1-billion revenue mark in 11 years, according to D.A. Davidson. 
• The company's strong leverage, with 16-percent free cash flow margins, is impressive, Jaluria said. D.A. Davidson expects margins to grow significantly over the next two years, as headwinds from the company's move away from Amazon.com, Inc. AMZN's AWS abate.
• Dropbox has a reasonable valuation, the analyst said. 

D.A. Davidson introduced a 2018 non-GAAP earnings estimate of 15 cents per share for Dropbox, with-21 percent revenue growth. For 2019, the firm estimates non-GAAP earnings per share of 23 cents on 15-percent revenue growth.

The Price Action

Dropbox raised the estimated price range for the offering from $16-$18 to $18-$20 on Wednesday.

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