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Dropbox(DBX) Stock Analysis | Why It’s a Buy

Founded in 2007, Dropbox is a file hosting service that offers cloud storage, file synchronization, personal cloud, and client software services. The following are the reasons that I believe Dropbox is a great buy and hold stock:

Undervalued

It is hard to calculate and place a value on stocks, but using formulas and conservatively estimating future cash flow value can allow you to place a value estimate on stocks. Dropbox shares are currently trading near all time lows, bringing down the market capitalization to around 7-8 billion dollars. Analysts that have been covering Dropbox and factoring in future cash flow value, believe that Dropbox should be realistically valued around a 10 billion market capitalization, bringing the share price to over $24.

Total user growth/paid user growth

Over the past decade, Dropbox has had very solid yoy user growth, both free and paid customers. Total yoy user growth has been increasing between 20-25% a year. As of 2019, Dropbox had over 500 million registered users.

Of those 500 million users, only about 13.5 million hold paid subscriptions, which accounts for only 2.5-3% of total users. Dropbox has been gaining 1-2 million paid users per year. While not insignificant, is still low overall compared to the number of users that sign up for the service overall. 

Converting free users into paid

Dropbox’s next strategy for paid subscriber growth is to convert their already large free user base into more paid subscribers. The company already has hundreds of millions of registered users. Over the next few years, if Dropbox can figure out a way to convert these millions of already registered free users into paid subscribers, then the price Dropbox is at right now will be considered a bargain and the company value will surely increase. As the years go on and people’s online storage needs continue to increase, Dropbox will hopefully eventually be able to convert its millions of free users to paid subscribers, it’s just a matter of when.

In conclusion, the future is currently looking very bright for Dropbox, but an investment would require years of patience. Buy and hold Dropbox for the long term. Within my stock portfolio, I have a position in Dropbox, which I am willing to sit on and hold.

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