by Ian Harvey
February 14, 2021
Dropbox earnings should show that the stock has fared well recently amid the rising demand for cloud services to select the stock offering as a most compelling investment opportunity.
Weekly Options Members and Earnings Predictions Members are well positioned to take advantage of this report.
Dropbox Inc (NASDAQ: DBX)
The coronavirus pandemic accelerated the transition to the cloud as enterprises across the world adopted remote working trends. Gartner estimates that global end-user spending on public cloud services will grow 18.4% to $304.9 billion this year. The research firm expects the proportion of enterprise IT spending on cloud computing to continue to increase and account for 14.2% of the overall global IT spending in 2024, compared to 9.1% in 2020.
And, Dropbox has fared well recently amid the rising demand for cloud services to select the stock offering as a most compelling investment opportunity.
Dropbox, which calls itself “the world’s first smart workspace”, is one of the leading players in the cloud storage and content management space. It boasts over 600 million registered users - including users of the company’s free plan - across 180 countries. As of the end of 3Q 2020, Dropbox had about 15.3 million paying users.
Dropbox earnings 3Q results beat analysts’ expectations, with revenue growing 13.8% year-over-year to $487.4 million (though the growth rate decelerated compared to 16.4% in 2Q). The 3Q top-line gained from a 9% increase in paying users, a rise in the price of the Plus plan, and a favorable mix of sales from higher-priced subscription plans.
Furthermore, ARR (annual recurring revenue) rose 12% to $1.98 billion. The 3Q adjusted EPS doubled to $0.26 compared to the same period last year as the company's adjusted operating margin expanded.
The Major Catalysts for Dropbox Earnings.....
Dropbox will report its highly anticipated Q4 2020 results and 2021 guidance next week, February 18, 2021. Even though the ''work-from-trade'' has fizzled out, the underlying dynamics of digital acceleration haven't gone away.
If Dropbox can maintain a healthy chart and hold near the buy point as its earnings date approaches, it could make sense as an earnings option trade.
The report will be for the fiscal Quarter ending Dec 2020, after the market closes. The consensus EPS forecast for the quarter is $0.05. The reported EPS for the same quarter last year was $0.03.
This online file-sharing company has an established record of topping earnings estimates, especially when looking at the previous two reports. The company boasts an average surprise for the past two quarters of 33.13%.
For the most recent quarter, Dropbox was expected to post earnings of $0.19 per share, but it reported $0.26 per share instead, representing a surprise of 36.84%. For the previous quarter, the consensus estimate was $0.17 per share, while it actually produced $0.22 per share, a surprise of 29.41%.
When the company reported Q3 earnings in early November, revenue increased 14% to $487.4 million. The number of paying users ended at 15.25 million, up 9% from the same period last year. Average revenue per paying user was $128.03 vs. $123.15 for the same period last year.
2. Analysts Positivity on Dropbox Earnings.....
Commenting on the streamlining measures, Canaccord Genuity analyst David Hynes believes that the workforce reduction plan is part of the new CFO Tim Regan’s commitment to meet the company's 2024 profit targets. Hynes said that a portion of the savings will likely be reinvested in faster-growing parts of the business, like HelloSign.
Following the latest cost-cutting move, the analyst's view on Dropbox remains “little changed.”
"The challenge these days in software is that growth is in vogue, almost irrespective of price, and in that kind of tape, a stock like DBX is going to underperform (ignoring speculation of an M&A buyout),” according to Hynes.
Bulls expect low-double digits growth for Dropbox earnings. And, according to Hynes, this is likely. However, he cautioned that he “can’t say this with 100% conviction.” Bottom-line, the analyst remains bullish and reiterated a Buy rating on the stock with a price target of $30.
The rest of the Street has a cautiously optimistic outlook on the stock. The Moderate Buy analyst consensus is based on 4 Buys, 1 Hold and 1 Sell. The average price target stands at $27.20, which reflects upside potential of about 20% over the coming year. That's after shares have already gained 26% over the past year.
Dropbox earnings targets an operating margin of 28%-30% and an annual free cash flow of $1 billion in 2024. On Jan. 13, Dropbox announced its decision to cut down its workforce by about 11%. The company believes that it requires fewer resources to support its in-office environment. It also announced the departure of Olivia Nottebohm as COO effective Feb. 5, 2021.
Other Catalysts for Dropbox Earnings.....
Dropbox is growing its revenues at solid double digits while being supported by a 12% y/y increase in ARR to just under $2 billion.
Also, Dropbox carries $1.2 billion of cash on its balance sheet, which equates to about 10% of its market cap.
Dropbox is highly free cash flow generating. Thus, together with its solid balance sheet, expect to see Dropbox meaningfully increase its M&A efforts in 2021 and seek out highly acquisitive targets such as recently noted with HelloSign, the e-signature and document workflow solution, now Dropbox's fastest-growing product.
Dropbox remains very cheaply valued at just 21x trailing free cash flow, while being supported with a rock-solid balance sheet.
Will Dropbox Earnings Exceed Expectations?
Should “Cut-to-the-Chase” Members Sell or Hold?
Is There Still An Opportunity To Enter The Trade and Profit?
What Other Trades Are We Anticipating?
Do You Wish To Be Part Of This Action?
An Important Note: That any suggestions for options trade considerations require investors/traders to use their own discretion as to when to enter or exit! As well, it is advisable to do further research and due diligence before executing your trade.
It is sometimes best to exit a trade, if there is already sufficient profit accrued, before an earnings report is presented. GREED can be the undoing of a nice profit!