As you’re pouring over your watchlist of stocks to own going into year end 2023, I’m sure you must be thinking, “what could be sexier than file management”...right?
I just happen to have the answer to that burning question. It’s file management hopped up on AI. And, it’s brought to you by a company you most likely know and trust already, Dropbox (DBX).
Dropbox has landed in the sweet spot of the new hybrid work model. We’re slowly returning to the office, but even “returning to the office” today means one to two to three days working remotely. Businesses are still being forced into work arrangement concessions to get and retain top talent.
Dropbox, which lets workers securely access files from any location is one of the big enablers of this new, and permanent for the foreseeable future, model. And, with the introduction of AI, this isn’t your father’s Dropbox.
The company just introduced Dropbox AI and Dropbox Dash (I received my invite to the new tool today) which lets users search files across platforms and answers questions from a user's files.
No more having to remember if you stored your document in Google Docs, Microsoft Word, or it’s been turned into a PDF already, and is awaiting a client signature. DBX can pull up the document from wherever it is with just a keyword search, or even a semantic search, and answer any question you may have that could be buried in the 500 page document you haven’t really read yet.
The AI also provides a rich interface to track all of a user's work, so one sees a dashboard project file that can also span multiple disparate softwares, like Slack, Google Docs, and Zoom. The AI can even summarize information from multiple files held in multiple software platforms, providing an answer to a query that may require overarching knowledge of the entire project.
A couple of things I like about the Dropbox business model, before getting to the numbers. First, they have a warm audience of potential customers that this new AI model can tap into. There are over 700 million users of Dropbox, but only a little over 18 million are currently paid subscribers.
Second, Dropbox has excellent relationships with large software partners, including Google (GOOGL), Microsoft (MSFT), Zoom (ZM), Slack, Adobe (ADBE), and Salesforce (CRM) that lets the company accomplish the AI platform/project integration. In essence Dropbox has become the aggregator of information and a critical component in the project process.
Dropbox is doing well fundamentally, and it is just at the beginning of the AI product introduction. In the latest quarter the company increased revenue over 7% YoY, and ended the quarter with over $1.3 billion in cash and cash equivalents…a great cash position in a still high interest rate environment.
As Co-Founder and Chief Executive Officer Drew Houston put it early this month, “We also released Dropbox Dash into open beta, redesigned the core Dropbox web experience, and introduced new business plans that seamlessly integrate workflow solutions beyond storage. We continue to see an opportunity to leverage AI and machine learning to improve the experience of distributed work that will provide long term value for our customers and shareholders.”
Dropbox has a PE of just over 18, gross margins of over 80% (a nice cushion) and operating margins of over 15%.
DBX is an overall B rated stock in our POWR Ratings, where its highest score is in the Quality component. It has a top Quality rating, and ranks above 99% of the companies we track.
Dropbox is grabbing the bull by the horns on the AI front, which should increase customer capture, from free users to paid users, and continue the growth trajectory the company is currently on.
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DBX shares were trading at $27.05 per share on Tuesday afternoon, up $0.02 (+0.07%). Year-to-date, DBX has gained 20.87%, versus a 18.44% rise in the benchmark S&P 500 index during the same period.
About the Author: Steven Adams
After earning a law degree cum laude with a focus on securities law, Steven worked as a Nasdaq market maker for a large broker dealer, and then as a trader for an arbitrage focused proprietary hedge fund. He subsequently worked as a consultant for a Fortune 500 consulting firm serving both government and commercial clients, including the NYSE, Prudential, FDIC, and NASA.
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