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Investing.com - Goldman Sachs raised its price target on Dropbox (NASDAQ:DBX) to $23.00 from $21.00 while maintaining a Sell rating following the company’s second-quarter results. Currently trading at $26.20, InvestingPro analysis suggests the stock is undervalued, with analysts’ targets ranging from $20 to $35.
The cloud storage provider outperformed consensus expectations on several key metrics, including revenue (+1.2%), operating margin (+400 basis points), unlevered free cash flow margin (+180 basis points), and average revenue per user (+1.4%), while paying users came in line with estimates. The company maintains impressive gross profit margins of 82.2% and a healthy free cash flow yield of 12%. InvestingPro data reveals 6 analysts have recently revised their earnings expectations upward for the upcoming period.
Despite the better-than-expected results, Dropbox shares fell approximately 1% in after-hours trading, with Goldman Sachs noting that the company’s raised fiscal year 2025 revenue guidance was "largely negligible" excluding foreign exchange tailwinds. With a market capitalization of $7.38 billion and a P/E ratio of 16.92x, the company maintains a "GOOD" overall financial health score according to InvestingPro’s comprehensive analysis, which includes over 30 key financial metrics and exclusive insights available to subscribers.
The investment bank expressed caution about near-to-mid-term growth prospects, citing persistent headwinds in Dropbox’s core File Sync and Share business, lack of monetization from its Dash product despite two quarters in the market, and ongoing challenges including a shift toward small and medium business customers, continued down-selling activity, de-emphasis of FormSwift, and headcount reductions.
Goldman Sachs acknowledged Dropbox’s strategic focus on Dash could potentially support topline improvement over time by refining customer acquisition for individual products and leveraging cross-selling opportunities to the company’s substantial user base of over 18 million paying users and 575,000+ business accounts.
In other recent news, Dropbox reported its second-quarter earnings, surpassing analyst expectations. The company achieved an adjusted earnings per share of $0.71, exceeding the consensus estimate of $0.62. Additionally, Dropbox’s revenue came in at $625.7 million, which was higher than the expected $617.83 million. Despite this earnings beat, the company’s revenue experienced a 1.4% decline year-over-year. On a constant currency basis, the decline was slightly less at 1.3%. Dropbox maintained strong profitability, with a GAAP operating margin of 26.9% and a non-GAAP operating margin of 41.5%. Both margins showed significant improvement compared to the same period last year. These developments reflect Dropbox’s ability to maintain robust margins even in the face of a revenue dip.
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