Dropbox, Inc. (NASDAQ:DBX) went public just last week, and has taken up much of the discussion surround technology stocks and the new kids on the block which may or may not provide the parabolic growth investors are increasingly seeking. While shares of Dropbox have done quite well since its IPO (trading nearly 50% above the company’s IPO price currently), it is important to understand the risks and potential rewards with such an investment at current levels. As such, I will attempt to provide a balanced discussion of where I see Dropbox headed and why it may suit some investors, while others should stay away.
In terms of a growth story, Dropbox is certainly one of the best companies out there for investors seeking a company with a large potential market to capitalize on. Dropbox is a very large player in a market which is much larger than what the company currently has taken advantage of. Dropbox’s user base approximates 500 million users with 11 million paying customers, and the company has done a good job in recent years of monetizing its user base, providing earnings-oriented technology investors with a strong thesis to buy and hold this name for a long time to come.
That being said, Dropbox currently trades at a multiple which is very high (albeit not as high as other young technology companies), trading at more than 12-times sales. The firm also has a number of competitors which have launched cloud storage solutions in recent years, and have begun to capitalize on this very large and growing market. While the market for cloud storage solutions may indeed be justifiably large as to warrant investment in Dropbox despite its competitive landscape, a lack of a relative moat has some, including myself, on the sidelines.
Invest wisely, my friends.
Tech Insider
