DA Davidson Says Its Dropbox Estimates Could Be Conservative: 'We Believe Shares Should Outperform'

Ahead of Dropbox Inc. DBX's IPO, D.A. Davidson initiated coverage of the company with a Buy rating and $22 price target.

The stock listed on the Nasdaq March 23 and recorded a 35.6-percent gain on its debut. The stock is up 43 percent through Friday since its listing. 

The Analyst

D.A. Davidson analyst Rishi Jaluria maintained a Buy rating on Dropbox and raised the price target from $22 to $36.

The Thesis

An investment in Dropbox now is less risky than buying shares before the company went public, Jaluria said in a Monday note.

D.A. Davidson raised its 2019 estimates for Dropbox, and Jaluria said even more upside could be realized than what's reflected in the sell-side firm's estimates. The firm expects Dropbox to notch 16-percent customer growth and 0.7-percent ARPU growth over the next two years. 

"While we acknowledge there may be further volatility in Dropbox's share price in the near term, especially as [the] lock-up period expirations approach, we believe shares should outperform over the next 12-18 months." 

Dropbox is unlikely to invest in an enterprise sales force, as its focus is on teams rather than massive enterprise-wide deployments, Jaluria said. 

What differentiates Dropbox from Alphabet Inc GOOG GOOGL's Google Drive and Microsoft Corporation MSFT's OneDrive is that Dropbox aims to serve as "a neutral third-party that can operate well with products from Microsoft, Google, Adobe Systems Incorporated ADBE, Slack and others," the analyst said. 

The Price Action

Dropbox shares were down 3.8 percent at the time of publication Monday. 

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Photo courtesy of Dropbox.