Takeaway: Moving Dropbox back to best ideas.

CLICK HERE to view our DBX Black Book Presentation from 3/20/18.

What happened in a week? We received new information. There is limited data in current published expectations for DBX. But over the last week clients have shared with us their understanding of what DBX management has communicated for 2018 revenue.

Apparently, management has not at all communicated an expectation of ARPU increases in 2018 that are about to roll through. We estimate the impact of ARPU increases on y/y revenue will re-accelerate revenue growth. In fact, we think that the revenue # implied by management for 2019 will be hit (or close) in 2018. Given the magnitude of the beat, and the lack of Street information about pending ARPU increases, we think the stock will go higher.

DBX | BACK TO BEST IDEAS LONG - revenue growth

What could it be worth? We think the stock can go to the range of $40 which implies ~$1,500 in value per subscriber for YE 2019 (estimate), which contemplates about ~10 years of subscription value in the stock. It also implies ~2% forward FCF yield, which is in-line with peers putting up fast growth rates sporting high FCF models.

Beyond the ARPU increases, we think Dropbox needs a consultant. The company’s best asset is their purpose-built, cloud-based, storage technology with scalability and reliability. The company’s best TAM opportunity is to use this core technology, which includes hardware, software, and service innovation, to go after the IaaS (Infrastructure-as-a-Service) TAM from a storage aspect, to potentially build out the CPU side or partner with someone for go-to-market. As top feature, the company can show easily marketable documents featuring the positive dollar impact of exiting S3 (AWS).

DBX | BACK TO BEST IDEAS LONG - bearbull

The current business model of taking price against a prosumer base has serious limits and the growth levers will expire within a few years as rising churn will offset gross paying user additions. However, in the meantime, what matters most is the fact that the price changes imply that DBX crushes 1H18 Street expectations. We'll take that as a strong near term opportunity with attractive upside.