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Why Dropbox Dropped 19.3% in November

By Brett Schafer – Updated Dec 6, 2021 at 6:45PM

Key Points

  • Dropbox stock dropped 19.3% in November after Q3 earnings results.
  • The results looked strong, so the sell-off probably came from broad market pressure on tech stocks.
  • The stock now trades at a price-to-free cash flow ratio of 12.5.

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The cloud storage and collaboration platform reported strong earnings last month, but investors still decided to sell off the stock during the period.

What happened

Shares of Dropbox (DBX 1.46%) dropped 19.3% in November, according to data from S&P Global Market Intelligence. The company, which offers cloud storage, file sharing, and digital collaboration tools, reported its third-quarter results at the beginning of the month. Investor reaction to the report is probably what caused Dropbox stock to sell off during the period. 

So what

On Nov. 4, Dropbox reported its quarterly results for the three months ending in September. The company beat on the top and bottom line for the quarter, bringing in revenue of $550 million compared with the analyst estimate of $544.72 million. Free cash flow also looked strong, at $221 million, showing the strong unit economics of the cloud storage platform. Many Wall Street analysts upgraded their price targets on Dropbox stock after the results came out. 

A blue cloud sitting next to a computer.

Image source: Getty Images.

With all these positive indicators, it's a bit surprising what Dropbox tanked almost 20% last month. We can probably chalk this up to broad market selling pressure in technology and high-growth stocks, which Dropbox tends to get grouped into. There also could have been some profit-taking from traders with a shorter-term time horizon, as Dropbox stock was up approximately 30% year to date when it released its Q3 results. Either way, Dropbox stock is down significantly from the beginning of last month, even though its quarterly report beat expectations. 

Now what

Dropbox has a market cap of $9 billion. Management is guiding for $715 million in free cash flow this year, which would give the stock a price-to-free cash flow (P/FCF) ratio of 12.5, significantly below the market average. Longer-term, Dropbox thinks it can hit $1 billion in annual free cash flow by 2024. At current prices, that would give the stock a single-digit P/FCF of 9.

Plus, with consistent share repurchases, which hit $181 million last quarter, Dropbox's share count should be down considerably over the next few years, which will increase free cash flow per share. If you are bullish on Dropbox's business prospects, now may be a good time to start a position with the stock down so much from the start of November. 


Brett Schafer owns shares of Dropbox. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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