DBX | Second Look Same as The First

11/08/18 11:13PM EST

The Bull Case & The Bear Case

BULL: DBX really can innovate. The innovation engine is the key to gross margins and OCF margins. It is the core of the business: scale, low cost, and efficiency in soup to nuts storage technology, including file and object store that enables greater search efficacy. On this side of things they are a true unicorn dynamo.

BEAR: DBX is in the midst of a price increase across its user base. We have detailed the exact mechanism of the increase, the change in feature sets, and the cadence. By Feb1 2019 we will begin to lap Y/Y comparisons of the increase at which point the tailwinds will cease unless the company enacts yet another increase. The key factor, user growth, continues to stall and Y/Y rate of capture is decelerating, not accelerating. The company wants the future to be Dropbox Paper. But despite owning this technology since 2014, with separate product launches in both 2015 and 2017, the company still refers to Dropbox Paper as ‘testing ground’. Pass. The company also is trying to drive enterprise wide ELAs at companies where users are organically relying on Dropbox. They have partnered with Salesforce to engage enterprises. So far there isn’t much to report on revenue, clients, and raison d’etre. There were 3 key sessions at the recent DreamForce; a partnership chat, a fireside chat with Benioff & Drew, and a technical session on the DBX integration into Salesforce. A very small part of the latter was meaningful; yet most of the remainder was DBX pitching its own products such as Showcase and Paper, unrelated to any Salesforce tools.

BOTTOM LINE: We like the tech, we hate the business model. Right now the latter traps the former. Tonight’s results show there is an expiration date ahead on growth. Yikes.  

DBX | Second Look Same as The First - DBX1

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Ami Joseph

Managing Director

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Yosef Vaitsblit

Analyst

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