Dropbox Shudders After COO Leaves, But Analysts Shrug It Off

(Bloomberg) -- Dropbox sank as much as 11 percent after a top executive left. But analysts largely stood by the company with second quarter earnings beating the highest estimates on strong ARPU growth as close to 50 percent of customers that were on a "grandfathered" plan renewed at a 30 percent higher price. RBC Capital analyst Mark Mahaney upgraded Dropbox to an outperform and said that the stock’s weakness was likely driven by COO Dennis Woodside’s resignation, "which after four years in the role likely needed to scratch his entrepreneurial itch."

RBC Capital (Mark Mahaney)

  • Upgrade to outperform from sector perform, raise PT to $36 from $34
  • 2Q revenue grew 27 percent year-over-year to $339m with upside largely driven by a notable acceleration in ARPU
  • 2Q fundamentals were consistently robust with Dropbox maintaining consistent revenue growth with significant Ebitda expansion

Goldman Sachs (Heather Bellini)

  • Dropbox delivered solid results in its second quarter as a public company driven by "better-than-expected ARPU from teams grandfathered into the premium Advanced SKU electing to remain on the new SKU at a ~30% price premium"
  • ARPU improved 5% year-over-year which was "accompanied by a ~60bps beat on gross margins, driven by efficiency benefits that drove increased utilization and lower unit costs"
  • Maintain neutral, raise PT to $31 from $30

Jefferies (John DiFucci)

  • Dropbox’s strong second quarter top-line growth of 27% year-over-year "was driven by growth in ARPU, itself led by the expiry of grandfathering into the newer Teams Advanced plan, and to a lesser extent by paid user growth"
  • "While annual customers do not have to make a decision until their natural renewal comes up in 2018, monthly subscribers were forced to convert to Advanced at the new price or revert back to the less-feature-rich Standard plan upon grandfathering expiry"
  • Maintain buy, raise PT to $37 from $32

Piper Jaffray (Alex Zukin)

  • Though "concerns around the lockup and COO departure may create some near-term noise in the stock, we believe that both ARPU and user trends remain healthy, while guidance remains conservative"
  • Dropbox moved lock-up period to August 23 from September 18 which fell within the company’s blackout period that starts on September 7 and believe the short window before the blackout period begins could create some volatility in the shares
  • Dropbox noted that about 50 percent of grandfathered teams renewed at a 30 percent higher price, and that the remainder of upgrades should roll out at a consistent pace over the next three quarters
  • Maintain buy and $40 PT

DATA

  • DBX has 10 buys, 2 holds, 3 sells, avg PT $33: Bloomberg data

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