Analyst: Dropbox's 'Across-The-Board Upside' in Q1 Reinforces Bull Thesis

Dropbox Inc. (NASDAQ: DBX)'s first-ever earnings report as a public company Thursday emphasizes the bullish case for the stock, according to KeyBanc Capital Markets. 

The Analyst

KeyBanc's Rob Owens maintains an Overweight rating on Dropbox's stock with an unchanged $40 price target.

The Thesis

Dropbox's Q1 print included an "across-the-board upside" beat, Owens said in a note. (See the analyst's track record here.) 

Owen identified the following takeaways from the quarterly report: 

• 27.6-percent revenue growth.
• Strong growth in users and revenue per user.
• Average revenue per user of $114.30.
• 11.5 million paying users versus 9.3 million one year ago and 11 million last quarter.
• Gross margin of 74.2 percent versus expectations of 71.1 percent.

Dropbox's operating cash flow and free cash flow in the quarter were flat on a year-over-year basis despite "outperformance relative to conservative estimates," Owens said. Adjusted free cash flow net of capital lease obligations was also flat, with the likely culprits being tax and working capital, he said. 

Dropbox's broad appeal and ability to improve business functionality justify ongoing upside from current levels, the analyst said.  A $7-million revenue beat and five points of margin outperformance in the first quarter lift expectations for the rest of 2018 and 2019, Owens said. 

KeyBanc's $40 price target is based on a 34x EV-to-2022 adjusted free cash flow multiple with a 15-percent discount rate.

Price Action

Dropbox shares were down 2.28 percent at $31.27 at the time of publication Friday morning. 

Related Links:

What This Analyst Expects From Dropbox's Q1

Dropbox Quiet Period Expires And Analysts Speak Up

Photo courtesy of Dropbox.