Dropbox Earnings: The Firm Shifts Focus and Restructures Amid the Tough Environment

We are lowering our fair value estimate for no-moat Dropbox to $24 from $26, as the firm reported first-quarter results that were slightly above our revenue expectations, and below our adjusted operating margin forecast. With macroeconomic headwinds and normalization following demand acceleration during the pandemic, we expect an overall slowdown in demand for Dropbox’s solution—pushing our fair value down as well. In order to offset headwinds, management highlighted its recent decision to reduce Dropbox’s workforce by 16%, as the firm redirects resources toward strategic initiatives around artificial intelligence enablement, improving its core portfolio and operational efficiency. With this, as well as anticipated currency headwinds, management reduced its revenue guidance and increased its bottom-line estimates for the full year. With shares trading up more than 7% after hours, we view Dropbox as fairly valued.