Dropbox Earnings: Solid Revenue and Margins Amid a Tough Macroenvironment; Maintain Valuation

We maintain our $24 fair value estimate for no-moat Dropbox, after the firm reported second-quarter results which came in above our revenue and adjusted operating margin expectations. Management guided for sequentially stronger third-quarter sales and raised its full-year revenue and margin outlooks. Despite the strong results, macro headwinds continue to bear down on Dropbox’s financials with customers reticent to spend money on Dropbox’s solutions during a time when their own budgets are squeezed. At the same time, we are encouraged by the firm’s reallocation of resources toward strategic initiatives around artificial intelligence enablement and improving its core portfolio, including a pivot away from commoditized cloud storage. With shares up more than 4% after hours, we view Dropbox as fairly valued.