Dropbox Conundrum: Analysts Issue Wide Range of Price Targets and Mixed Ratings

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Dropbox Inc. (NASDAQ: DBX) has seen the quiet period for its underwriters following the initial public offering (IPO) come to an end. The shares closed down almost 3.3% at $29.02 on Monday, and they have a post-IPO trading range of $27.75 to $34.83.

After the company announced that the underwriters exercised in full their option to purchase an additional 5.4 million shares at the IPO price of $21.00 apiece, a total of 46,161,905 shares of common stock have been sold in connection with the offering.

Before we get right into the syndicate analysts who can now cover Dropbox with formal ratings, note that one analyst call stood out ahead of this quiet period ending. Last week, Nomura issued a Reduce rating and a mere $21 price target. The firm noted that Dropbox was great at getting free customers to sign up but not so great at getting those unpaid subscribers to convert to premium products with ongoing subscription service contracts.

Dropbox claims to have more than 500 million registered users in 180 countries. It claimed ahead of the IPO that just over 11 million of those users were paying subscribers, and the company has three classes of common shares. The company also is not yet profitable, yet cash flow was said to be positive.

Not all the analyst calls have been seen yet, but these are the calls so far:

  • Canaccord Genuity issued a Buy rating and a $35 price target.
  • Goldman Sachs issued only a Neutral rating and a $27 price target.
  • Jefferies started coverage on Dropbox with a Hold rating and a $31 target.
  • JPMorgan issued an Overweight rating and assigned a $32 price target.
  • JMP Securities started it as Market Outperform and assigned a $35 target.
  • KeyBanc Capital Markets issued an Overweight rating and a $40 target price.
  • Macquarie issued an Outperform rating and $34 target price.
  • Piper Jaffray posted an Overweight rating with a $40 price target.
  • RBC Capital Markets issued a Sector Perform rating with a $33 target.

Dropbox’s IPO underwriting syndicate was shown as follows: Goldman Sachs and JPMorgan were listed as the joint lead book-running managers. Allen, Deutsche Bank, Jefferies, Macquarie, Merrill Lynch and RBC Capital Markets were the joint book-running managers. Canaccord Genuity, JMP Securities, KeyBanc Capital Markets and Piper Jaffray were listed as co-managers.

Dropbox had revenue of $603.8 million in 2016, and that grew to $844.8 million in 2016 and $1.1 billion in 2017. This represented annual growth rates of 40% and 31%, respectively. The company’s net losses were $325.9 million in 2015, $210.2 million in 2016 and $111.7 million in 2017. That said, Dropbox generated positive free cash flow of $137.4 million in 2016 and $305.0 million in 2017.