UBS lowers Dropbox stock price target to $29 on growth concerns

Investing.com - UBS lowered its price target on Dropbox (NASDAQ:DBX) to $29.00 from $31.00 while maintaining a Neutral rating following the company’s recent earnings report. According to InvestingPro data, analysts maintain a moderate buy consensus with price targets ranging from $20 to $35, suggesting potential upside from current levels.

The cloud storage company reported better-than-expected results across key metrics, including a 1-point revenue beat at -1% constant currency (approximately flat when adjusted for FormSwift) and a 4-point EBIT margin beat reaching 41.5%. The company maintains impressive gross profit margins of 82.2%, while generating substantial free cash flow with a yield of 12%.

Dropbox also raised its fiscal year 2025 free cash flow guidance to $970 million from the previous $950 million, prompting UBS to adjust its estimates accordingly.

UBS now forecasts FY25 revenue growth at -2.0% constant currency, improved from its previous -2.4% estimate, while increasing its FY25 EBIT margin projection to 39% from 38.5%.

Despite these improvements, UBS remains cautious as Dropbox continues to face declining average revenue per user and net new paying users, with the firm awaiting evidence that growth can accelerate beyond the current flat trajectory when adjusted for FormSwift. InvestingPro analysis reveals that management has been actively buying back shares, with 6 analysts recently revising their earnings estimates upward for the upcoming period. Get access to 8 more exclusive ProTips and comprehensive financial analysis through InvestingPro’s detailed research reports.

In other recent news, Dropbox reported second-quarter earnings that exceeded analyst expectations, with adjusted earnings per share of $0.71, surpassing the consensus estimate of $0.62. The company also reported revenue of $625.7 million, which was higher than the expected $617.83 million. Despite this earnings beat, Dropbox experienced a 1.4% year-over-year revenue decline. The company’s GAAP operating margin was 26.9%, and its non-GAAP operating margin reached 41.5%, both showing significant improvement from the previous year.

Goldman Sachs responded to these results by raising its price target for Dropbox to $23.00 from $21.00, although it maintained a Sell rating. Dropbox outperformed consensus expectations on several key metrics, including a 1.2% revenue increase, a 400 basis points rise in operating margin, and an 180 basis points improvement in unlevered free cash flow margin. Additionally, the average revenue per user increased by 1.4%, while the number of paying users met estimates. These developments reflect Dropbox’s ability to maintain strong margins despite a slight revenue dip.

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