Dropbox Earnings: Strong Margins Despite Macro Pressures; Maintaining Valuation

We maintain our fair value estimate of $26 for no-moat Dropbox after the firm reported earnings for its first quarter of fiscal 2024. Persistent macro tightness kept budget scrutiny high among Dropbox’s customers, reaffirming the firm’s vulnerability to churn. In our view, Dropbox’s offerings do not embed themselves in their customers’ mission-critical operations, and the wide availability of substitutes continues to be a threat. However, we were encouraged to see the firm maintain high profitability as it continues to focus on operational discipline during a time of macrouncertainty. Following the earnings report, shares were trading up, and we view them as fairly valued.