Yet Dropbox's business does appear sound, and most of the forces pulling its stock down for most of the year don't seem to have much to do with its actual operations. Although the company does produce copious amounts of free cash flow, some $329 million on a trailing basis, when compared to its $8.96 billion enterprise value, that gives it a very rich free cash flow-to-enterprise value multiple of 27, a lot to pay for a stock whose earnings are expected to grow at a 17% annual rate for the next five years. That's the kind of growth story investors typically like - but it may already be priced into the stock, which trades at 55 times this year's earnings and seven times sales. That kind of expansion could serve to drive its user costs dramatically lower, while widening its gross margin. Today it has over 500 million registered users and over 12 million paying ones, and analysts see it being able to convert as many as 300 million of those users into paying ones over time. A rich premium even for a sound businessĭropbox has the premier content platform in cloud-based storage.
Dropbox dropped the ball on investor expectations this year.
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