BofA Expects Dropbox To Address Product Issues During September Analyst Day

Although Dropbox Inc DBX reported mixed results for the second quarter, the stock has catalysts ahead, according to Bank of America Merrill Lynch.

The Analyst

Justin Post maintained a Buy rating on Dropbox with a $33 price target. 

The Thesis

Dropbox reported second-quarter revenue and non-GAAP EPS of $401.5 million and 10 cents, respectively, ahead of Street estimates of $401 million and 8 cents. The number of paying users increased more than expected, while average revenue per user declined sequentially to $120.48.

The key positives in the second quarter were the net adds of 400,000 and improving churn, Post said in a Friday note. (See his track record here.) 

The company guided to third-quarter revenue of $421-$424 million — $5 million above the Street estimate on the high end. 

Dropbox initiated a price hike July 1 and indicated better-than-expected churn and conversion in the first month of the increase, the analyst said. 

Dropbox also signaled a healthy mix of net adds and ARPU growth for the back half of the year. Post said he was surprised that the stock did not react to these positives.

BofA expects Dropbox to use its September analyst day “as an opportunity to share user and behavior data for their customers that can better explain positioning vs. competition and defend Dropbox usage/engagement trends.”

The analyst day — as well as ARPU growth and improving operating margins in the back half of the year — could lend upside to the stock, Post said. 

Price Action

Dropbox shares were down 13.75% at $18.51 at the time of publication Friday. 

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Photo courtesy of Dropbox.