Despite growth and financial improvement Dropbox is still cheaper than their IPO valuation more than 3.5 years ago.Ĭurrently Dropbox trades around $9.1 billion market cap yielding free cashflow of just under 8% for FY21. Since going public the lowest market cap Dropbox has traded at is around $7 billion and that was at a time of negative net income. If we include cash and marketable securities, we get an EV/EBITDA of 10.91x for FY21. However, the fundamentals for Dropbox have not changed, making this sell-off a chance to increase exposure. The BLS reports November CPI on the 10th of December which could easily exacerbate the sell-off. The market reacted negatively to Dropbox's decent Q3 results and the sell-off has now been worsened by Omicron uncertainty and a hawkish Fed. Investors are waiting for clinical data in the coming weeks to determine the treatment for the new variant (vaccine efficacy) and more specifically what it means for hospitalizations and capacity as that is the ultimate concern which would force government action. As the market prices in faster monetary tightening, investors also have concerns about the new Omicron variant which based on initial data appears to be significantly more transmissible than Delta. While the S&P500 still has a price to earnings multiple around 25x, Dropbox is still waiting for its day in the sun.Ī hawkish Fed testified before the Senate Banking Committee on Tuesday indicating a more concerning stance on inflation. Management have also provided guidance, communicating that they expect to reach $1 billion in free cashflow by FY24.
Currently Dropbox has a market cap of $9.1 Billion, and based on FY22 estimates (FCF - $798M) the DBX stock is trading at 11.4x free cashflow NTM. I maintain that Dropbox should be priced somewhere around the high $30s.
My conclusion was Dropbox was undervalued and now after a 25% sell-off, the upside is even better.
I have discussed in a previous article the Dropbox ( NASDAQ: DBX) thesis, where I look at the business and use various inputs to determine Dropbox's intrinsic value. Matt Winkelmeyer/Getty Images Entertainment
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