For instance, Apple offers all of its customers 5 GB of free space through iCloud. Per Figure 2, the YoY growth in paying users has fallen from 35% in 2016 to just 10% TTM. By comparison, Google Cloud’s revenue increased 43% YoY in 2Q20, and Microsoft grew its commercial cloud revenue by 39% YoY over the same period. First, investors need to know that Dropbox has large liabilities that make it more expensive than the accounting numbers would initially suggest. Top Competitors Websites For instance, the firm adds back stock-based compensation, a non-cash, but very real expense that dilutes shareholder value, to its calculation of FCF. Catalyst – Slowing Revenue Growth With Increased Expectations. San Francisco, CA 94158, Cloud: Photo & Video Backup! David is a distinguished investment strategist and corporate finance expert. In the first scenario, I use 14% revenue growth in year one and 11% in years two through five (vs. consensus estimates of 14% in 2020 and 11% in 2021). You can see all the adjustments made to Dropbox’s balance sheet here. Over half of Americans online have never used cloud storage service MEGA is Cloud Storage with Powerful Always-On Privacy. Dropbox, a pioneer among cloud storage and syncing services, offers synced desktop folders for anywhere-access.Though it's comparatively pricey, unique tools like … Having to charge users for services they can get free from competitors with whom they’ve already integrated puts Dropbox in a very poor competitive position. Combining human expertise with NLP/ML/AI technologies (featured by Harvard Business School), we shine a light in the dark corners (e.g. New Constructs provides unrivaled insights into the fundamentals and valuation of private & public businesses. However, upon closer look, Dropbox’s free cash flow fails to reflect the true economics of the business. In the second scenario, the estimated revenue growth rate for year one is 14% in years one through five. Dropbox’s share of the global cloud storage market has fallen from 4.4% in 2017 to 3.6% in 2019 as more competitors enter the space and existing competition ramped up storage options… Growing registered and paying users is a serious uphill battle for Dropbox since most of its potential paying users are already customers of firms that provide the same service as Dropbox along with many other important services. The stock will also likely sink should any of its competitors get more aggressive and offer more cloud storage at even lower prices so that Dropbox’s value proposition gets only weaker. Figure 1: Dropbox’s YoY Revenue Growth Since 2016. Valuation: I made $2.1 billion of adjustments with a net effect of decreasing shareholder value by $90 million. And with advanced sharing features, it’s easy to share docs and send files—large or small—to family, friends, and co-workers. Consensus estimates show that the market expects the firm’s revenue growth rate to decline from 14% in 2020 to just 10% in 2022. The cost of cloud storage depends on the amount of space you actually need. I think potential acquirers would be better off leaving cloud storage to the firms that can offer cloud storage as a free add-on to their deeply integrated services, but stranger things have happened than firms being acquired at unnecessarily high premiums to their intrinsic value. Additionally, Dropbox has not been nearly as efficient at converting free users to paid users. Meanwhile, Box (BOX), a direct competitor, had ~13 million paying users out of just 71 million registered users, or 18%, as of 2Q20. The market also expects Dropbox to lose more market share given that the global cloud storage market is expected to grow much faster (by 22% compounded annually from 2020 to 2025). Dropbox (DBX) is a pioneer of cloud storage. 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