MAll tech stocks fell this year as investors worried about rising bond yields, inflation rates, foamy valuations and difficult post-pandemic comparisons for companies that had benefited from domestic hold-back measures . But one of the tech stocks that weathered this storm was the cloud storage provider Dropbox (NASDAQ: DBX).

Dropbox stock is up about 20% this year, but it still looks cheap with 18x forecast earnings. It is also trading above its IPO price of $ 21, having slipped below in the final months of 2020. Let’s see why Dropbox’s stock has finally firmed, and whether or not it is still a worthy investment today.

Image source: Getty Images.

Review the key figures

Free Dropbox users get 2 GB of cloud storage. Individual users can get 2TB of storage for $ 9.99 per month, or share 2TB with up to five other users on family plans that cost $ 16.99 per month. Dropbox also offers various business plans that start at $ 12.50 per user per month.

Each paid tier adds more perks, including camera downloads, offline folders, text searches, document scanning tools, and electronic signature support. Demand for Dropbox’s services continued to climb throughout the pandemic, as evidenced by steady growth in its revenue, paid users, and average revenue per paying user (ARPPU). Its gross and operating margins also continued to improve.

Data source: Dropbox. YOY = year after year. Non-GAAP margins.

These growth rates indicate that Dropbox is not falling behind its biggest competitors, including Box (NYSE: BOX) and tech giants like Microsoft (NASDAQ: MSFT), Alphabetof (NASDAQ: GOOG) (NASDAQ: GOOGL) Google and Amazon (NASDAQ: AMZN).

To differentiate itself in this crowded market, Dropbox acquired the electronic signature start-up HelloSign in 2019 and the secure document sharing company DocSend earlier this year. He believes that the integration of these services will allow him to create an “end-to-end suite of secure, self-service products for collaboration, sharing and electronic signing of content.”

During the last version of Dropbox conference callCEO Drew Houston noted that there was a growing demand for these “seamless” collaboration services among freelancers and small to medium-sized businesses, and said “there has never been a better time in the world. story to create collaboration software ”.

A stable outlook for the future

Dropbox expects its revenue to grow by around 11% this year. He expects half of that growth to be organic and the other half to come from his recent takeover of DocSend. He noted that its number of paid users and ARPPU may experience short-term “variability” due to its promotion of family plans and the intentional abandonment of large corporate clients paying less money per user. .

Therefore, Dropbox estimates that its ARR (annual recurring revenue), which increased 13% year-over-year to $ 2.1 billion in the first quarter, will be a better measure of its success this year than its growth in paying users and ARPPU. Analysts expect its revenue to grow 11% this year, followed by 9% growth next year.

Dropbox expects its non-GAAP operating margin to decrease from 21.4% in 2020 to 27% -28% in 2021. It plans to offset the impact of the DocSend acquisition in the first half of the year by postponing some of its planned marketing initiatives. towards the second half. Over the longer term, it expects its adjusted annual operating margin to remain between 28% and 30%.

Dropbox plans to generate between $ 670 and $ 690 million free movement of capital for the full year, which would be 37% to 41% growth from 2020. He also reiterated his long-term goal of generating $ 1 billion in free cash flow per year by 2024, this which could give it plenty of room for other acquisitions that expand the ecosystem.

Analysts expect Dropbox’s adjusted profit to rise 46% this year, thanks to its boost from DocSend, and rise a further 12% next year. These forecasts indicate that its stock is still cheap relative to its growth.

The turtle proves the critics wrong

Dropbox is growing at a slower pace than many others cloud service stocks, but its core metrics continue to improve as it expands its cloud storage service into an end-to-end collaboration platform.

Dropbox and Box will likely continue to attract individual users and businesses who do not wish to be tied to services from Microsoft, Amazon, or Google. Bears claiming Dropbox and Box will be crushed by those tech giants often ignore this niche appeal.

Dropbox insiders have also bought twice as many shares as they’ve sold in the past six months. There has also been some buzz of activist interest in the stock, which remains a reliable turtle in a market full of hares. Therefore, I think Dropbox will remain one of the few tech stocks that can outperform the market this year, as investors shift from growth stocks to value stocks.

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