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Copying some material from General thread for people to continue discussion on DBX:

 

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I have looked at DBX and BOX some time ago. Here I have bigger issues with competition. If you are business and you go to cloud, you get disk storage and backup storage together with cloud. I.e. just get AWS/GCP/Azure/whatever cloud storage. Why would anyone use/pay for DBX/BOX? If you are not business, then there's still Google/Amazon/Microsoft drives in the cloud that are competitively priced and likely more integrated with your other stuff (e.g. Gmail/Amazon photos/etc.). So I really don't see a defendable niche. There were people defending BOX here on CoBF couple years ago. And presumably there were businesses paying for storage there. So maybe I am totally wrong.

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There is M* report on DBX with similar arguments.

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I don’t own this, but from an income statement POV it looks interesting. Gross’s margins are 80% and they have shown substantial operating leverage and achieved GAAP profitability as well. Their stated goal is to generate $1B in FCF, which makes it cheap with a ~7.7B market cap (based on a $18.5 stock price).

 

Then on the other hand, their product (cloud Storage  and some newer add on apps like Hellosign, Vault) seems overpriced at $120 year, considering you can buy an MS Office subscription with some free 1TB in cloud storage thrown in for less.

 

They do seems to be able to get new paying customers from their pool of ~500M users who have the freemium version. It is conceivable they can continue to convert a small percentage of freemium users into paying ones every year and make a nice living off that.

 

I would like to have some eyes on this and learn what people think.

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Bulls

 

- Expanding product portfolio (enterprise, HelloSign, WFH, Smart Workspaces, etc.)

- Projected FCF of 1B in 2024 (20% CAGR)

- FCF 40% of revenue in Q3, 2020

- Real estate portfolio with $800 million in cash flows (13-15 years)

- CEO is friends with Zuckerberg and on the board of Facebook

- +600m registered users

- +15m paying users

- ARPU growth

- Motivated owners that turned down an offer from Steve Jobs.

 

Bears

 

- MSFT, AAPL, GOOG, AMZN, BOX, etc. is eating DBX's lunch

- " ::) DBX is a value stock that has gone nowhere since IPO"

- "A melting ice cube": https://www.sprucepointcap.com/reports/dbx_research_thesis_2-6-2020.pdf

- CEO is friends with Zuckerberg and on the board of Facebook

 

Q3 2020 Earnings Call Transcript:

https://www.nasdaq.com/articles/dropbox-inc.-dbx-q3-2020-earnings-call-transcript-2020-11-07

 

even with conservative revenue growth rates, we have confidence in our long-term margin trajectory of 28% to 30%, and our cash flow target of $1 billion in 2024, compounding free cash flow at a 20% CAGR over that time horizon. So we are extremely focused on executing against that long-term model

 

Our continued growth in ARR reflects our strategy to attract new paying users, drive users to our premium plans and improve retention. We ended Q3 with 15.25 million paying users, adding over 290,000 net new paying users in the quarter. ARPU was $128.03.

 

Gross margin for the quarter was 80%, which was an increase of 3 percentage points compared to Q3 2019. This improvement was driven by unit cost efficiency gains with our infrastructure hardware, including lower depreciation as a share of revenue. For operating expenses, third-quarter R&D expense was $132 million or 27% of revenue compared to 30% in Q3 a year ago.

 

We ended Q3 with cash and short-term investments of $1.226 billion. Cash flow from operations was $201 million in the quarter. Capital expenditures were $14 million, yielding free cash flow of $187 million or 38% of revenue.

 

We will continue to invest in revenue growth, improve our operating margins, aim to deliver $1 billion of free cash flow in 2024, and allocate capital to high-ROI initiatives.

 

announced a number of new features in June, including Dropbox Passwords, Vault, and Backup. We also rolled out our new Family plan

 

In Q3, HelloSign was recognized as the No. 2 overall eSignature vendor in G2's fall report, as well as being ranked No. 1 for ease of adoption.

 

It's clear to us that in the long run, the shift to distributed work will be as significant as a shift to mobile or the shift to cloud. We see an even greater opportunity to improve the remote work experience by helping our users organize their work and home lives. And by truly living our mission as a Virtual First company, we believe we're on the leading edge of developing the tools our users need for the new world.

 

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I don’t own this, but from an income statement POV it looks interesting. Gross’s margins are 80% and they have shown substantial operating leverage and achieved GAAP profitability as well. Their stated goal is to generate $1B in FCF, which makes it cheap with a ~7.7B market cap (based on a $18.5 stock price).

 

Then on the other hand, their product (cloud Storage  and some newer add on apps like Hellosign, Vault) seems overpriced at $120 year, considering you can buy an MS Office subscription with some free 1TB in cloud storage thrown in for less.

 

They do seems to be able to get new paying customers from their pool of ~500M users who have the freemium version. It is conceivable they can continue to convert a small percentage of freemium users into paying ones every year and make a nice living off that.

 

I would like to have some eyes on this and learn what people think.

 

I did a dive into the smaller cloud players last summer. IMO DBX has the least attractive. My firm just moved all of our information to the cloud pre-covid and we had decided to go with BOX mainly because of the encryption and financial services certification for regulatory reasons. MSFT, Google, and DBX couldn't give us the proper certifications that would reassure us that we were in compliance. BOX is amazing the user interface and search capabilities are incredible. Moving from a private network to the cloud was seamless and really easy just took some time. As a small player, I think that is where BOX can separate itself from the pack.

 

3 years ago I was mad at Apple and decided to switch to Samsung Galaxy. My MAC had broken the year prior and I had bought the Surface Pro as a replacement (also a boycott of Apple). The problem I had when I switched phones was that all my contacts were backed up to iCloud and was a nightmare backing them up to One Drive. I had moved all my photos to One Drive. So when i got my new phone I had 0 contacts and really realized the importance of having a cloud storage that is not linked to your phone so that your Data is portable. On my new phone I tested calendar and contacts for both Google Cloud and One Drive. I found for calendars and contacts Google was far superior. MSFT would double up birthdays and if I added events on my phone it wouldn't flow through to outlook calendar on my computer. I had similar issues with contacts where I would make changes and they wouldn't show up. I decided to use google strictly for contacts and the free Terabite from my office subscription on photos. Not having IMessage was the only reason I decided to go back to the iPhone and having all my contacts on google and photos on One Drive made the switch back seamless.

 

In short, I don't see the niche that DBX can support. Everyone knows that AWS, Azure, and GCP are the bigger players and large firms gravitate towards them. For individuals, it's easy to send and share documents on Google Drive or through One Drive. Box IMO can support firms that have higher regulatory needs as they have marketed themselves. I don't see DBX helping on an individual basis and don't see what added value they can provide to large firms. While 1B in FCF sounds nice I don't see the path to reach it nor do I agree with the management projections. The overall TAM is growing and fast they might be able to maintain their market share but I think growing it will be a different story. If they can at least maintain they might be a good take-out candidate but I think the risks outweigh the rewards here.

 

But would be interested to see what bulls think..

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The Sprucepoint presentation illustrates the bear case pretty well. I also agree that DBX doesn’t have an offering that is interesting for most larger companies. I think smaller companies/organizations and individuals are the main paying users and compared to competing products, their offering seems overpriced, at least if you only use it for cloud storage.

 

I don’t own this and most likely never will, it went into the too hard pile.

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