2. Dropbox, Inc. (NASDAQ:DBX)
Number of Hedge Fund Holders: 44
Dropbox, Inc. (NASDAQ:DBX) is a California-based company that provides a content collaboration platform. On August 4, the company declared a Q2 non-GAAP EPS of $0.38, beating analysts’ predictions by $0.01. The quarterly revenue of $572.7 million jumped 7.9% year over year, outperforming Wall Street forecasts by $1.43 million. The quarter ended with 17.37 million paying users, up from 16.14 million users in the same period last year.
In late May, Jefferies analyst Brent Thill assigned a Buy rating to Dropbox, Inc. (NASDAQ:DBX) but lowered the price target on the stock to $30 from $35. The analyst slashed forecasts across 28 software companies on the back of challenging economic headwinds and the risk of recession.
According to Insider Monkey’s data, Dropbox, Inc. (NASDAQ:DBX) was part of 44 hedge fund portfolios at the end of Q1 2022, with collective stakes amounting to $814.4 million. Seth Klarman’s Baupost Group is the largest position holder in the company, with 10.5 million shares worth $245.7 million.
Here is what RGA Investment Advisors has to say about Dropbox, Inc. (NASDAQ:DBX) in its Q4 2021 investor letter:
“Dropbox really let us down this quarter, not because they did anything wrong, but because during our entire tenure holding this stock, it outperformed in periods where long duration assets (aka higher growth) sold off. This time it did not. Despite people asserting this market bifurcation is about selling growth and buying value, Dropbox shares suffered one of their worst stock market quarters in recent years. It’s hard to identify a specific reason, though one story out there is how some investors thought the company could raise the bar on its 30% targeted operating margin upon achieving those levels. Along with the company’s earnings report, instead of raising the bar, they explained how there is more room to drive margin, but in the mean-time the preference at the company is for investing the potential excesses to drive further growth.
This year, the company will have repurchased nearly 9% of its diluted shares outstanding (perhaps more given the Q4 route in shares) and will have delivered a free cash flow yield upwards of 7.5% on its year-end stock price, while growing upwards of 12%. This is a potent recipe for outstanding returns, yet in a market that’s theoretically seeking cash flow, the stock was punished. We think this is one of the most nonsensical moves of them all and find Dropbox to be an especially compelling opportunity heading into 2022. The top line is certainly growing, as the company continues to withstand competition from Microsoft, Google and Box. Plus management continues to make smart tuck-in acquisitions, showing what may emerge as a scalable, repeatable recipe for deepening their relationship with existing customers, thus driving down churn and setting the stage for prolonged ARPU growth. This potential strategy started with HelloSign, and is further validated with the acquisition of DocSend…” (Click here to see the full text)
