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Dropbox Bulls Keep the Faith Even as Results Fail to Stop Slide

Ryan Vlastelica

(Bloomberg) -- Dropbox Inc. tumbled to an all-time low on Friday, extending a recent downtrend as the software company’s latest results failed to convince investors of the bullish narrative that analysts continue to push.

The stock dropped as much as 14% on volume that was more than three times the daily average, and the move erased more than $1 billion from the company’s valuation. Friday’s decline not only marked the biggest one-day percentage loss in the company’s history -- it went public in March 2018 -- but it took shares to record intraday lows.

Shares have been trending lower for weeks; Dropbox has only risen in three of the past 19 trading days, according to Bloomberg data, and it is down about 30% from a July peak.

A weaker-than-expected read on billings was seen as the primary catalyst behind the decline, although analysts remain positive on the company, the decline notwithstanding.

“It’s frustrating to face nearly ceaseless negativity and middling performance of the stock,” wrote Richard Davis, an analyst at Canaccord Genuity.

“We haven’t broken the bears yet,” he added, but “we’re willing to stick with this name.” Among other factors, Davis cited a product redesign as something that could lead to long-term outperformance.

Eleven analysts have the equivalent of a buy rating on the stock, compared with three firms with a hold rating and two advocating selling the stock. The average price target is a little under $30, or 60% above current levels.

Here’s what analysts are saying about the results:

Canaccord Genuity, Richard Davis

“Every relevant forward-looking metric that matters was good for this print and guide.”

The product redesign is focused on giving users a good experience, which Davis sees as a long-term tailwind. “It is more likely than not that Dropbox will be able to deliver long-term sustainable growth and, eventually, 30%+ [free cash flow] margins.”

Buy rating, $35 price target.

Jefferies, John DiFucci

This was a “solid” quarter, with revenue slightly ahead of expectations, “though billings was a bit shy due to a higher mix of monthly invoicing.”

The product redesign integrates the service with Slack, Zoom, and Atlassian, and “a unified workspace approach should enable DBX to cross-sell additional products.”

Buy rating, $32 price target.

RBC Capital Markets, Mark Mahaney

“Organic fundamentals remain very much intact,” although “fundamental trends were modestly less robust.” Expects margins to expand in the second half of the year.

A product redesign “could lead to a stickier product in the workplace, which can drive robust revenue and fundamental growth trends going forward.”

Outperform rating, $32 price target.

Nomura Instinet, Christopher Eberle

The results were “somewhat underwhelming,” and there “continues to be what we believe is a miscommunication between management and investors.”

Raises earnings expectations for 2019 and 2020, but trims price target by $1 to $24. Neutral rating.

KeyBanc Capital Markets, Rob Owens

The company’s “rapid innovation cadence and continuous improvement to Company-owned infrastructure justify further upside.”

Overweight rating, $35 price target.

Bernstein, Zane Chrane

Notes a “strong beat” on net paid user additions, although average revenue per user fell short of expectations.

Cites higher customer acquisition costs as a concern.

Underperform, $19 price target.

(Updates stock to show record low, adds KeyBanc commentary.)

To contact the reporter on this story: Ryan Vlastelica in New York at rvlastelica1@bloomberg.net

To contact the editors responsible for this story: Catherine Larkin at clarkin4@bloomberg.net, Will Daley, Scott Schnipper

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