Nomura Sees 4 Reasons Dropbox (DBX) Fundamentals Are Deteriorating

Nomura/Instinet analyst, Christopher Eberle, reiterated his Reduce rating on shares of Dropbox (NASDAQ: DBX) after the company posted a beat and raise for the second straight quarter but mentioned several bearish data
points on the call that reinforced the analyst's cautious stance on the company.

The analyst cited 4 specific points that led him to believe fundamentals will deteriorate:

1) Volatility at the senior level continues to plague the company with the announced departure of COO Dennis Woodside. The analyst believes that this suggests significant hurdles in DBX’s transition from consumer-oriented to
enterprise-focused customer base.

2) ARPU growth is peaking and benefited from a large one-time event.

3) Paid user conversion appears to be slowing registering only 0.07% in 2Q, the lowest in nine quarters. Paying user growth also decelerated to 20% in 2Q from 24% in 1Q and mid-to-high 30% growth in 2Q17.

4) Competitors like GOOGL have been cutting already lower prices, and DBX cited existing customers asking
for more storage without paying for additional licenses as a factor in its decision to increase Professional and Standard storage by 1TB.

No change to the price target of $21.

For an analyst ratings summary and ratings history on Dropbox click here. For more ratings news on Dropbox click here.

Shares of Dropbox closed at $32.75 yesterday.

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