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On Friday, RBC Capital Markets maintained its positive stance on Dropbox (NASDAQ:DBX), raising the price target from $32.00 to $35.00 while keeping an Outperform rating on the shares. Currently trading at $29.47, InvestingPro analysis suggests the stock is undervalued, with impressive gross profit margins of 82.15%. The adjustment followed Dropbox’s latest quarterly earnings report, which RBC Capital described as mixed. The company’s revenue growth was moderate at 0.79% over the last twelve months, and its annual recurring revenue (ARR) growth slowed by 130 basis points. Nevertheless, Dropbox’s stock edged up by 0.5% in after-hours trading on the day of the announcement.
Despite the deceleration in ARR growth, RBC Capital highlighted Dropbox’s robust top-of-funnel activity and improving retention efforts. The firm also took note of the company’s updated full-year operating margin guidance, which increased by 50 basis points. However, the constant currency revenue forecast remained unchanged with an expected decline of approximately 2%. InvestingPro data reveals the company maintains strong financial health with a GREAT overall score, supported by multiple positive indicators. Get access to 7 additional exclusive ProTips and comprehensive analysis through InvestingPro’s detailed research reports.
RBC Capital’s analysis suggests that Dropbox’s future growth trajectory hinges on the success of Dash, its new initiative. While the firm adopts a cautious ’wait-and-see’ approach regarding Dash’s impact, it still views the risk/reward balance for Dropbox as favorable. The analysts believe that as long as growth does not consistently turn negative, Dropbox’s valuation remains attractive.
The report concluded with a reminder of the potential risks and rewards associated with Dropbox’s stock. RBC Capital emphasized that while the current valuation is compelling, a sustained negative growth trend could alter this perception. For now, Dropbox’s efforts in customer retention and the development of Dash are key factors to watch in the coming quarters.
In other recent news, Dropbox reported its first-quarter 2025 earnings, surpassing analyst expectations with an earnings per share (EPS) of $0.70, compared to the forecasted $0.63. However, the company reported revenue of $624.7 million, slightly below the anticipated $630.83 million. Despite the earnings beat, Dropbox’s revenue saw a 1% decline year-over-year. The company maintained its total annual recurring revenue (ARR) at $2.552 billion on a constant currency basis, showing stability in its subscription model. Citi analysts have adjusted their price target for Dropbox to $32.00, maintaining a Neutral rating, following Dropbox’s solid financial performance. The analysts noted that Dropbox exceeded revenue expectations and increased its EBIT to $22.4 million from $10 million in the previous quarter. Dropbox has raised its non-GAAP operating margin guidance to 38-38.5% for the full year 2025 and expects unlevered free cash flow to be at or above $950 million. Despite these positive developments, Dropbox anticipates a decline in paying users by approximately 300,000 by the end of 2025.
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