Dropbox Inc: A Tech Stock Worth Considering on the Pullback

Time to Check Out Dropbox Stock

After almost a year of the technology sector rallying, many of the popular tech stocks have gotten very expensive.

Sure, the rise in share prices might be driven by these companies’ resilience and financial growth during the COVID-19 pandemic. But if you’re a value-conscious investor, going after stocks that just shot through the roof may not be an easy decision.

And that, my dear reader, is why Dropbox Inc (NASDAQ:DBX) stock could be an opportunity.

Dropbox is a cloud storage service provider headquartered in San Francisco, CA. The company was founded in 2007 with the goal of helping users back up and share their files. Over the years, the Dropbox platform has expanded globally and now has 700 million registered users across 180 countries. (Source: “Company Presentation: February 2021,” Dropbox Inc, last accessed February 22, 2021.)

Given the nature of its business—Dropbox keeps files in sync and helps create a smart workspace—you’d imagine that DBX stock would be a hot commodity during the pandemic.

Well, Dropbox stock did bounce back very quickly from the market sell-off last March, but compared to the other soaring tech stocks, it did not exactly shoot through the roof.

Dropbox Inc (NASDAQ:DBX) Stock Chart

Chart courtesy of StockCharts.com

In fact, if you look at the most recent section of the Dropbox stock chart, you’ll see that the stock fell 3.8% on February 19—a day when the Dow Jones Industrial Average, S&P 500, and Nasdaq Composite remained largely flat.

What was the reason behind that abrupt move?

Well, Dropbox released its fourth-quarter results on February 18 after the closing bell. The report showed that, in the quarter, the company generated $504.1 million of total revenue, which represented a 13% increase year-over-year. (Source: “Dropbox Announces Fourth Quarter and Fiscal 2020 Results,” Dropbox Inc, February 18, 2021.)

Excluding non-recurring items, Dropbox’s adjusted net income came in at $0.28 per share, marking a significant improvement from the $0.16 per share it earned in the year-ago period.

The numbers also turned out to be better than Wall Street’s expectations. On average, analysts expected the company to earn an adjusted profit of $0.24 per share on sales of $498.0 million.

And there’s more.

Dropbox Inc’s annual recurring revenue—calculated by multiplying the number of users with active paid licenses at the end of a reporting period by their annualized subscription price—grew 11% year-over-year to $2.0 billion. On a constant-currency basis, year-over-year growth in annual recurring revenue would have been 12%.

Note that this was the first time Dropbox’s annual recurring revenue crossed above the $2.0-billion mark.

In the fast-changing tech world, having a large recurring business should be reassuring to investors. And keep in mind that, at its current share price, Dropbox Inc has a market capitalization of less than $10.0 billion.

The reality is that, even though DBX stock may not seem like a market favorite at the moment, the company’s business has been consistently improving. Dropbox had 12.7 million paying users at the end of 2018, and that number grew to 14.3 million at the end of 2019—and then to 15.5 million at the end of 2020.

Each user has also been paying more to use the company’s platform. Dropbox’s average revenue per paying user went from $117.64 in 2018 to $123.07 in 2019—and then to $128.50 in 2020.

Analyst Take

Ultimately, the growth rate of Dropbox Inc may not be as explosive as that of some of the hottest tech tickers. But a consistently improving business still deserves investor attention. Dropbox stock fell on earnings—even though the results were solid.

For investors who don’t like to get in after a massive rally, the recent pullback in DBX stock could be an opportunity.