DBX - Dropbox: The Growth Engine Has Sputtered (Rating Downgrade)

2024-06-06 13:43:59 ET

Summary

• Dropbox's stock has dropped over 20% this year, with slowing growth and disappointing Q1 results.
• The company cited conversion issues at the top of its funnel, stemming from its decision to focus on middle-priced SKU tiers.
• Q1 revenue growth not only decelerated sharply and declined sequentially from Q4, but also lagged several points behind rival Box's growth rate.
• The only positive offsets for Dropbox are a rich operating margin (~37%) and a cheap FCF multiple, but growth issues will likely keep the stock from re-rating to a normalized multiple.

Left and right, software companies are citing both tighter IT budgets as well as a slowdown in headcount expansion as key headwinds to growth. Companies that used to tout their ability to sustain double-digit growth are now backing down from those hopes - and those that struggled to notch impressive growth rates prior to this macro slowdown are having an even more difficult time, such as Dropbox, Inc. ( DBX )....

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