Dropbox Stock At $30: What’s Next?

February 21st, 2025 by Trefis Team

Dropbox (NASDAQ:DBX) recently released its Q4 results, with earnings per share of $0.73 on revenue of $644 million, surpassing consensus estimates of $0.62 and $639 million, respectively. To enhance shareholder returns, Dropbox also announced a new share repurchase program of $1.2 billion. However, user growth was below expectations, and the company’s 2025 guidance fell short of market projections. Consequently, the company’s share price declined by approximately 8% in after-hours trading following the earnings announcement.

Image by fernando zhiminaicela from Pixabay

Margin Expansion And Share Repurchases Drove The Bottom-Line Growth

Dropbox reported Q4 sales of $644 million, a modest 1.4% increase compared to the same period last year. Annual recurring revenue (ARR) grew by 2% year-over-year, reaching $2.57 billion, however, ARR declined by approximately $5 million sequentially. The company’s paying user base increased year-over-year to 18.22 million, from 18.12 million, but experienced a decline of 15,000 users compared to the previous quarter.

In Q4, Dropbox saw an 80 bps increase in gross profit margin, reaching 83.1%. Operating margin also showed significant improvement, rising 470 bps y-o-y to 36.9%. Looking ahead, the company anticipates 2025 sales of approximately $2.49 billion, which is lower than the current analyst consensus estimate of $2.55 billion. Despite this, Dropbox expects operating margin to improve by more than 100 basis points. The company’s earnings per share rose 46% year-over-year to $0.73 as a result of slight revenue growth, expanding margins, and a substantial 11% decrease in the number of outstanding shares due to $1.2 billion in share repurchases.

What Does This Mean For DBX Stock?

DBX stock, with just 8% gains since the beginning of 2024, has underperformed the broader S&P500 index, up 28%. This can partly be attributed to investor concerns over slowing paid user growth. Even if we look at a slightly longer timeframe, the increase in DBX stock over the recent years has been far from consistent, although annual returns were less volatile than the S&P 500. Returns for the stock were 11% in 2021, -9% in 2022, 32% in 2023, and 2% in 2024.

Given the current uncertain macroeconomic environment around rate cuts and ongoing trade wars, could DBX face a similar situation as it did in 2021 and 2024 and underperform the S&P over the next 12 months — or will it see a strong jump? From a valuation perspective, DBX looks fairly priced at levels of around $30.
At its current trading levels, DBX stock exhibits a price-to-sales multiple of 3.7x, slightly below its five-year average of 4.1x. A modest downward revision to the valuation multiple is warranted given the observed deceleration in paid subscriber and revenue growth. Consequently, we assess that DBX stock is fully valued at $30, despite its recent underperformance.

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