Analyst Note| Brian Colello, CPA |
No-moat Dropbox finished off the second quarter of fiscal 2021 with top and bottom lines exceeding our expectations along with management's prior expectations. Management also provided strong guidance for the second half of the year, with the firm expecting solid revenue growth and material improvement in the business' margin profile. Overall, Dropbox is transitioning from the commoditized cloud storage space into greener pastures in the more holistic content collaboration platform space. With the firm's recent acquisitions of DocSend and HelloSign, along with its existing feature-rich platform, we see material average revenue per user, or ARPU, and paid user expansion as attainable. As a result, we are raising our fair value estimate to $26 per share from $19 per share. With shares currently trading above $31 per share, however, we do not see a favorable risk-reward trade-off at current valuations.