Dropbox is Trading Dirt-Cheap: Should You Buy the Stock?

Dropbox's DBX expanding AI-powered product portfolio has been playing a key catalyst in driving up the paid user base. It exited the first quarter of 2024 with 18.16 million paying users, marking sequential growth of roughly 35,000. As of Mar 31, 2024, DBX had more than 700 million registered users.
Dropbox's strategy of leveraging AI to develop products that organize all cloud content is a positive. Its long-term growth prospect is driven by a strong partner base that includes the likes of Google, Slack, Adobe, Atlassian, Zoom, Microsoft MSFT, Salesforce and NVIDIA NVDA.
However, the current level at which DBX shares are trading doesn't reflect these positive factors in our view. Shares have declined 24.5% year to date, underperforming the broader Zacks Computer & Technology sector's return of 15.2% and the Zacks Internet Services' growth of 18.9%.
Dropbox's closing price of $22.27 on Jun 3 is closer to the lower end of the 52-week range of $22.04-$33.43, reflecting ample room for upside.
DBX is trading at a significant discount with a forward 12-month P/S of 2.86X compared with the industry's 5.71X, making it an attractive pick for investors.

Dropbox, Inc. Price and Consensus

Dropbox, Inc. price-consensus-chart | Dropbox, Inc. Quote

This Zacks Rank #1 (Strong Buy) stock has a Growth Style Score of A and Momentum Score of B, a favorable combination that offers a strong investment opportunity, per the Zacks Proprietary methodology.

Enhanced Product Capabilities Aid Prospects

Dropbox's product offerings, like Dropbox Dash and Dropbox AI, have been gaining strong adoption. Dropbox Dash allows users to quickly find everything in one place, including content that is pulled from Microsoft Outlook, Google Workspace or Asana.
Dash's latest enhancements improve search functionality and help customers get answers much faster. The latest update made the solution capable of searching by keywords and semantic search, which provides more contextually relevant search results.
In April, DBX announced new security, organization and sharing features, as well as real-time co-authoring integrations with Microsoft 365. Microsoft Copilot Integration now gives users the ability to query their Dropbox files directly from within Microsoft Teams. The latest security update offers an advanced data protection feature that adds an extra layer of protection.
Dropbox's offerings that help in effective team collaboration have been driving business user growth. As of Mar 31, 2024, it had roughly 575K business teams, and 34% of paying users were business teams.
Dropbox's collaboration with NVIDIA expands the former's extensive AI functionality with new uses for personalized generative AI. This improves search accuracy, provides better organization, and simplifies workflows for its customers across its cloud content. DBX leverages NVIDIA's AI foundry to enhance its latest AI-powered products, including Dropbox Dash and Dropbox AI.

Dropbox's 2024 View Strong

For 2024, Dropbox expects revenues between $2.535 billion and $2.55 billion. At constant currency, revenues are expected between $2.532 billion and $2.547 billion.
The Zacks Consensus Estimate for 2024 revenues is pegged at $2.54 billion, indicating year-over-year growth of 1.66%. The consensus mark for earnings is pegged at $2.12 per share, up 7.07% over the past 30 days.
The company expects gross margin to be in the 83-83.5% range for the full year. Non-GAAP operating margin is expected in the 32.5-33% range.
Dropbox expects free cash flow between $910 million and $950 million for 2024. It reported a free cash flow of $759 million in 2023. Strong liquidity is helping Dropbox pursue shareholder-friendly activity. At the end of the first quarter of 2024, Dropbox had $1.1 billion remaining under its current share repurchase authorization.

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