Dropbox Inc., DBX reported earnings on Friday, February 20, 2020, not to be confused with BOX which reports earnings on February 26th, 2020, with revenues and stronger cash flows, We started covering Dropbox Inc., in the 3rd quarter of 2019 because it’s in a space that we believe will see very good growth over the next five years. The stock is still slightly undervalued based on its intrinsic value by about ten percent with a fair value stock price of $24.71.
The 4th quarter numbers were pretty good putting the company on track for stronger growth going forward. The company reported revenues of $443.5M but expected $446.00M a 0.60 percent increase. The company grew earnings to .16 per share versus expected earnings of .14 per share, up 13.19%. Based on my understanding of how the company was growing revenues and the context of the earnings call, this quarter was significant because of the quality of the earnings growth.
The company is looking at Non-GAAP and GAAP forward guidance of 18% – 19% and 13% -14% respectively. We believe the company’s earnings growth is sustainable based on the expectation of higher gross and operating margins and is not sacrificing growth by de-focusing on average user growth generated through subscription revenues.
I think the company has a firmer grasp on its business plan, and we should see stronger, sustainable growth in the future. Is the stock a buy? We think so. However, be mindful. This stock is not a Wall Street darling like Facebook, Amazon, Netflix or Google so don’t expect huge volatility in the stock price or huge stock swings. It’s a slow burner. We own stock in Dropbox.
Disclosure: I am/we are long Dropbox. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it . I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities. Before buying or selling any stock you should do your own research and reach your own conclusion or consult a financial advisor. Investing includes risks, including loss of principal.