Bear of the Day: Dropbox (DBX)

There’s a big difference between a bad company and a bad stock. Sometimes a perfectly good company just doesn’t have the earnings momentum you want to see. That distinction becomes even more important when the broader market gets picky. You don’t necessarily need a business to fall apart for the stock to underperform. Sometimes, slowing growth and a lack of positive earnings revisions are enough.

That brings us to today’s Bear of the Day, Dropbox (DBX). Dropbox operates a cloud-based platform that allows individuals and businesses to store, organize, access and share digital content. The company has more than 700 million registered users around the world, making Dropbox one of the most recognizable names in file storage and collaboration.

Here’s where things get interesting. Dropbox actually delivered a decent second quarter. Adjusted earnings came in at 75 cents per share versus the Zacks Consensus Estimate of 74 cents, while revenue increased 0.9% year over year to $631.5 million. Paying users increased by roughly 96,000 sequentially, marking the third consecutive quarter of user growth. Management even raised its full-year operating-margin and unlevered free-cash-flow outlooks.

Dropbox, Inc. Price and Consensus

Dropbox, Inc. price-consensus-chart | Dropbox, Inc. Quote

So why the bearish stance? Growth remains the problem.

Even after that better-than-expected quarter, Dropbox expects 2026 revenue of just $2.513 billion to $2.523 billion. That's basically a flat-growth business at this point. It’s caused two analysts to cut expectations for the current year and three to do so for next year. Our Zacks Consensus Estimate has gone from $3.08 to $3.04 as a result for this year, with next year’s number down from $3.47 to $3.27. That’s the reason why the stock is a Zacks Rank #5 (Strong Sell) right now. Too many analysts dropping their numbers on the stock.

Dropbox is in the Internet – Services industry which ranks in the Bottom 30% of our Zacks Industry Rank. There are a couple of stocks in the industry that are in the good graces of our Zacks Rank. This includes Zacks Rank #2 (Buy) Inuvo (INUV) and Sprout Social (SPT).

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This article originally published on Zacks Investment Research (zacks.com).

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