Steer Clear of Overpriced Dropbox

In terms of our modeling, we believe the firm can grow revenue at a 15% five-year CAGR, placing our estimates at the upper end of consensus. We think the business can achieve GAAP profitability in 2019, but we "only" think GAAP operating margin can expand into the low-20% range over 10 years, below peers. Dropbox's growth opportunity is a double-edged sword. Dropbox could either build out a salesforce in an attempt to gain share against wide-moat competitors such as Google and Microsoft, leading to margin compression, but faster top line growth. Conversely, the firm could rely on self-serve adoption, leading to more robust margins but tepid enterprise revenue growth. Dropbox affirmed it will not build out an enterprise salesforce at this juncture, and we struggle with the notion that individual subscribers will succeed in evangelizing Dropbox's offerings such that their employers will use the service at the enterprise level. Additionally, while Dropbox drove ARPU growth through new pricing on the enterprise side this quarter, we posit that commodification of the firm's storage technology will inhibit the firm from driving growth through price increases ahead.

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