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On Friday, Citi analyst Steven Enders adjusted the price target for Dropbox (NASDAQ:DBX) shares, reducing it to $30 from the previous $31, while maintaining a Neutral rating on the stock. Enders highlighted that Dropbox reported a slight revenue beat, with revenues exceeding expectations by 0.7% compared to 0.2% in the last quarter. The company, currently valued at $8.45 billion, achieved modest revenue growth of 1.86% over the last twelve months, maintaining impressive gross profit margins of 82.5%. However, the company is experiencing challenges in its core business, as evidenced by a quarter-over-quarter decline in annual recurring revenue (ARR) and user numbers.According to InvestingPro analysis, Dropbox currently shows signs of being undervalued compared to its Fair Value estimate. Subscribers can access 8 additional key insights about DBX’s financial health and market position.
Dropbox’s initial revenue guidance for the coming year anticipates a 3% year-over-year decline. This forecast is partly due to reduced investment in the non-core service Formswift, which accounts for half of the projected decrease, and foreign exchange headwinds that contribute approximately one percentage point to the decline. Additionally, Enders noted that core user trends are expected to continue deteriorating at an increasing rate.
The analyst expressed concerns about the medium-term viability of Dropbox’s growth prospects. He remains skeptical that the company’s new initiatives, such as the Dash feature, will be sufficient to counteract the negative trend. Trading at a P/E ratio of 15.4x, Enders suggested that significant stock buybacks might be the primary factor currently supporting Dropbox’s stock price. However, he also pointed out that these buybacks could pose an approximate $80 million headwind to the company’s free cash flow estimate (FCFe).For a comprehensive analysis of Dropbox’s valuation and future prospects, including detailed financial health scores and expert insights, check out the full research report available on InvestingPro.
In other recent news, Dropbox reported fourth-quarter earnings that surpassed analyst expectations, with adjusted earnings per share at $0.73, exceeding the consensus estimate of $0.62. Revenue for the quarter was $643.6 million, slightly above the projected $639.05 million, marking a 1.4% year-over-year increase. The company’s total annual recurring revenue grew by 2.0% year-over-year to $2.574 billion, while the number of paying users increased to 18.22 million from 18.12 million the previous year. Average revenue per paying user also rose to $140.06 from $138.83 year-over-year. For the full fiscal year 2024, Dropbox reported total revenue of $2.548 billion, reflecting a 1.9% increase from the previous year. The company’s non-GAAP operating margin improved to 36.4% from 32.8% the prior year. In December 2024, Dropbox announced a $1.2 billion share repurchase program, indicating confidence in its financial health and a commitment to returning value to shareholders.
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