Dropbox remains one of the largest Initial Public Offerings (IPO) this year. As mentioned above, the company managed to raise $756 million from the ICO scoring an insane valuation of $12 billion. However, current trends on the company’s stock indicate that the company is unable to justify the valuation.
This is not to mean that the company has been making losses all along, on the contrary; Dropbox has in the recent quarters posted strong financials compared to most of its competitors. With a solid client base of 500 million, 12 million of whom paying customers, the company is financially sound as it gets.
As mentioned above, Dropbox is a company with a strong balance sheet. For its 2018 third quarter results, the company reported gross revenue of $360.30 million surpassing analysts’ average estimates of $352.74 million. The company’s earnings per share was $0.01, contradicting the $0.06 analysts prediction by a difference of $0.07.
As of Monday, December 24 trading session, the company’s stock was trading below $21- its IPO price. During the session however, the stock surged 1.91 % to $19.75. The stock traded to a high of $ 20.03 and a low of $ 18.50. As of the Friday session the company’s market valuation had retreated to $8.03 billion- a significant drop from its all-time high of $12 billion.
A majority of WallStreet analysts are hopeful that the stock will gain ground before the end of the fourth quarter. Among the several analysts covering the company’s stock, Zacks Investment Research promoted the Dropbox’s stock from a Hold rating to a Buy. The stock received a consensus recommendation of a “Buy” with an average price target of $33.93.
One thing we can all agree on Dropbox’s valuation is that it is declining drastically from the $12 billion it posted during its IPO. At $7.88 the company’s market cap is slightly past half its IPO valuation fueling concerns on what the management needs to do to gain the lost value.
Dropbox’s stock is trading at a relatively solid price, its revenue growth checks out, but the company’s valuation is plunging. Dropbox has an uphill task of converting its huge user base to paying clients, that way maybe the effects might reflect on its valuation.
Dropbox is, however, operating in a highly competitive sector where its offerings appeal more to individual users compared to corporate clients. With the mushrooming of companies offering cheaper services compared to Dropbox, it will prove even harder for Dropbox to increase its paying users in the long run.
In the end, Dropbox might have only one card to play –update its offerings to appeal to enterprise customers. In so doing, the company risks losing existing clients, or maybe if they play their cards right, they might gain enterprise customers and retain existing user base altogether.
Privacy and Security-focused alternatives to Dropbox
Although Dropbox has a huge fan base, the company stands to lose these clients to upcoming firms offering security-focused cloud storage services. Security is one of the most significant considerations in selecting a cloud storage provider. Big companies like Dropbox are not that big on security, and this might single-handedly play to their downfall. pCloud is one of the small but fast-growing startups that stands the change of giving Dropbox and the like a run for their money. Another security-focused company is Sync.com. Both of these companies have solid encryption features making it less risky to use their cloud storage services.