BofA Cuts Rating Even As Dropbox Appears Set To Beat Q2 Expectations

Although Dropbox Inc DBX is likely to beat Street expectations for the second quarter and has near-term tailwinds, its SaaS transformation could take more time to play out, according to BofA Securities.

The Dropbox Analyst: Ryan Gee downgraded Dropbox from Buy to Neutral, while reducing the price target from $32 to $25.

The Dropbox Thesis: It could be a while before the Dropbox app, launched last year, boosts the company’s fundamentals as well as stock multiples, Gee said in the note.

He added that the likely spike in demand for remote work in the second quarter may not materially change the long-term opportunity.

While increased adoption by enterprise clients may drive multiple expansion, “the timeline is no clearer now and we see other software names where product and cloud collaboration demand is already having a transformative impact on near-term results,” the analyst wrote.

While expressing these concerns, Gee said Dropbox is likely to beat Street expectations in the second quarter, with revenue up 16% to $466 million and operating margins of 16.9%.

He added that the stock’s near-term performance will depend on management’s third-quarter guidance and indication of churn in small to medium businesses due to closures, trial retention, and desktop app engagement.

DBX Price Action: Shares of Dropbox were trading around $22.22 at the time of publication.