Dropbox Inc. (NASDAQ:DBX) is turning out to be an interesting play as investors react to the cloud storage company reporting impressive Q3 earnings and full year outlook. The stock could as well surge as the upward momentum is slowly gaining pace after a steep sell-off that begun mid this year.
Dropbox Price Analysis
The stock has lost nearly 40% in market value, since June, after coming under immense short selling pressure. While the stock is still engulfed in a steep downtrend, price action activity has in the recent past pointed out to a potential turn around in the direction of trade. Formation of a double bottom at the $22 a share level is a development that continues to excite the bulls. The $22 a share level has emerged as a key support level from, which the stock could surge. For the stock to turn bullish, it needs to rise and stabilize above the $25 a share level, which is the immediate resistance level. Above the $25 a share level, Dropbox could make a run for the $30 a share level the next substantial resistance level. Taking into consideration the downtrend, a breach of the $22 a share level could leave the stock susceptible to further declines in continuation of the long-term bear trend.
Upward Momentum Catalysts
However, the stock has started seeing solid activity on the upside an indication of building bullish momentum. Fuelling the upward momentum is quarterly earnings results that impressed Wall Street. The cloud storage company reported a net loss of -$5.8 million amounting to 1 cent a share, less than half a net loss of -$14 million of 7 cents a share reported a year ago. The San-Francisco based company saw its revenue grow by 26% in the quarter to $360.3 million, beating Wall Street estimates of $352.8 million. In anticipation of continued growth, Dropbox expects its fourth-quarter revenue to come in between $367 million and $370 million. The company has also raised its full-year revenue guidance to between $1.38 billion and $1.39 billion, from initial guidance of between $1.36 billion and $1.37 billion. Free cash flow in the quarter surged to $120 million as gross margin widened to 75.9% from 68.1%. According to Chief Financial Officer Ajay Vashee, the company remains well positioned to finance all its marketing and research activities.
“We are fully funding all the initiatives across marketing, all the initiatives across research, development, and all of the initiatives across a product that we believe are important to drive long-term growth for the business, “said Mr. Vashee.
Dropbox registering an 18% increase in new users to 12.3 million is an achievement that underscores growing demand for its cloud storage services and product. The increase came even on the company raising the price it charges per user by $118.60 from $112.05 further affirming strong demand amidst stiff competition in the industry.
Dropbox has consistently shown it does not need to compete at the same level with other tech giants when it comes it cloud storage offerings. Consistent revenue growth, as well as gross margins expansion, affirm the fact that the company is doing extremely well at the backdrop of soaring competition. Regular revenue growth, user numbers growth, as well as margin expansion, should continue to strengthen the stock sentiments in the market. The broader tech stock market turning bullish should also have a positive impact on the stock, which has mostly underperformed because of the bearish stance in the market. After the recent steep decline in share price, investors could soon start taking note of the company’s growth metrics. The steep pullback essentially provides an exciting opportunity to buy the stock on the cheap.