Dropbox Earnings: Despite the Drop Following Earnings, We Won’t Pick Up Shares at These Prices

We are raising our fair value estimate for no-moat Dropbox to $26 from $24 after the firm finished 2023 with financial results ahead of our prior forecasts. While macro pressures continue to affect Dropbox’s customers’ budgets negatively, we believe the firm’s increased emphasis on profitability during this increased macrouncertainty is the right move. At the same time, we believe that the macroimpact on Dropbox’s business further shows the lack of switching costs associated with its solutions with Dropbox customers cutting down their spend when their own budgets got squeezed. Unlike other software companies that are often mission-critical to their users’ workflows, Dropbox does not enjoy the same leverage over its customers. Despite the firm’s shares trading down following its earnings report, we view them as overvalued relative to our updated fair value estimate.