Investors are cloud hopping these days, and that means Dropbox (DBX 0.77%) is finally starting to get the attention it deserves. The provider of cloud-based data storage solutions for consumers and enterprises has seen its stock climb 31% this year through Monday's close, and it could be just getting started.
There's a lot to like when it comes to Dropbox. Let's go over a few of the reasons why it's still a compelling stock to buy even after a healthy start in 2020.
Image source: Dropbox.
1. It's still a ground-floor opportunity
A lot has happened with Dropbox since it went public at $21 in 2018. The shares traded as high as the low $40s a few months after its IPO, but it also spent most of the first few months of 2020 meandering around in the mid-teens. It's now back in the low $20s.
Dropbox checks off all of the boxes that a growth investor likes to see. It is still run by Drew Houston, who co-founded the company back in 2007. It's a ubiquitous provider of data storage to its more than 600 million members. Most of them are free accounts, sure, but even then there's a method to the madness at Dropbox. The funnel of free users is a great source for premium accounts. It has 14.6 million paying users now, up from 13.2 million a year earlier. The average revenue per user has risen from $121.04 to $126.03 a year over the past 12 months.
Revenue growth may not blow you away, but it's as steady as a marching band. Top-line growth has risen between 18% and 18.8% in each of the past four quarters. Dropbox should be a winner, but it's essentially barely above where it was when it went public at $21 a share 27 months ago. It has done nothing but prove itself to investors, yet it's still priced as if it's a ground-floor IPO opportunity.
2. Dropbox wins a lot
Dropbox has always been profitable on an adjusted basis, but now it's also profitable on a reported basis. The bottom-line story is actually better than you probably think. The cloud pioneer perpetually boosts its guidance after cranking out market-thumping results. In fact, it's a perfect eight-for-eight in landing ahead of Wall Street's profit targets as a public company.
| Quarter | EPS Estimate | EPS Actual | Surprise |
|---|---|---|---|
| Q2 2018 | $0.07 | $0.11 | 57% |
| Q3 2018 | $0.06 | $0.11 | 83% |
| Q4 2018 | $0.08 | $0.10 | 25% |
| Q1 2019 | $0.06 | $0.10 | 67% |
| Q2 2019 | $0.08 | $0.10 | 25% |
| Q3 2019 | $0.11 | $0.13 | 18% |
| Q4 2109 | $0.14 | $0.16 | 14% |
| Q1 2020 | $0.14 | $0.17 | 21% |
Data source: Yahoo! Finance. EPS = earnings per share.
We're talking about double-digit percentage beats in each and every quarter as a public company. Why is it, then, that this stock is barely above its debut price?
3. Hello to HelloSign
One of the market's best performers is DocuSign (DOCU 5.84%). The top dog in e-signatures hit another all-time high on Tuesday, and the shares have now more than doubled in 2020. Wet signatures were being replaced by the far more convenient e-signatures before COVID-19 came a-knocking, but now they're practically a document standard.
Dropbox made a pretty savvy acquisition a year and a half ago, buying DocuSign competitor HelloSign in a $230 million deal. No one's going to argue that DocuSign dominates this market, but clearly there's room for more than one winner. In the new normal, DocuSign has seen an explosion in popularity for HelloSign and the HelloWorks platform for digital document management.
DocuSign is great, and unlike Dropbox it has been a huge market darling since going public a month after Dropbox. However, with DocuSign stock more than tripling since the day that Dropbox announced the HelloSign acquisition, surely the value of that subsidiary is worth even more now.
4. Dropbox is growing in the new normal
COVID-19 is scary stuff, and most companies will feel the pain in the near term if not the long run. Dropbox is actually accelerating during the pandemic, and understandably so with so many people working from home.
Daily trial starts to Dropbox Plus -- its premium platform where folks pay $11.99 a month for expanded storage capacity and other perks -- have risen 25% since the coronavirus shutdown began. Dropbox Business -- the more heavy duty premium offering for what is now 450,000 companies and organizations on the platform -- has seen its trials grow 40% over pre-COVID-19 levels. Dropbox also points out that its premium users are seeing increased engagement and collaborative activity, so Dropbox is going to have strong momentum even as we head out of these crazy days.
A popular bearish knock is that a couple of tech giants have popular cloud-storage platforms at lower price points for premium packages. No one is denying that, but the consistent analyst beatdowns and double-digit revenue gains continue. If you cracked open a time capsule from the springtime of 2018 and found Dropbox there at its IPO price, wouldn't you be tempted to buy in after everything it has done right? You still have that chance.
