Dropbox stock rating downgraded to Sell by UBS on AI product concerns

Investing.com - UBS downgraded Dropbox (NASDAQ:DBX) from Neutral to Sell on Thursday, while lowering its price target to $27.00 from $29.00. The stock, currently trading at $31.68, sits near its 52-week high of $33.33, despite maintaining impressive gross profit margins of 81.45%.

The downgrade reflects UBS’s negative assessment of demand signals for Dropbox Dash, the company’s new AI product, as well as continued pressure on Dropbox’s core File Sync and Share (FSS) business.

UBS expects Dropbox will be unable to return to and sustain positive revenue growth given deteriorating revenue fundamentals, projecting revenue declines of 1.2% and 0.9% in fiscal years 2026 and 2027, respectively.

These projections fall below consensus estimates, which anticipate revenue declines of 0.6% in FY26 and growth of 0.6% in FY27.

UBS also forecasts free cash flow of $955 million and $965 million for those years, below the consensus estimates of $973 million and $972 million, and believes Dropbox stock will face pressure as it derates from the approximately 11x consensus 2026 free cash flow multiple.

In other recent news, Dropbox has reported its second-quarter earnings for 2025, surpassing analyst expectations with an earnings per share (EPS) of $0.71, compared to the forecasted $0.62. Revenue also exceeded projections, reaching $626 million against an expected $617.83 million. Additionally, Dropbox announced an amendment to its Credit and Guaranty Agreement, securing up to an additional $700 million in delayed draw secured term loans. This move is intended to repay the company’s outstanding convertible senior notes due in 2026. In another development, Jefferies raised its price target for Dropbox to $30 from $28, citing strong operating margins. The company achieved an operating margin of 41.5%, significantly exceeding its guidance of 37.5%, primarily due to headcount reductions and lower marketing expenses. These developments reflect Dropbox’s strategic financial maneuvers and operational efficiency.

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