Some investors take solace in Dropbox’s seemingly healthy cash flow, but Spruce Point believes that its FCF margin is misunderstood by the Street by as much as 2x. We have collected unique data showing that its late FY19 decision to raise prices after creating a more “business-friendly” platform – dubbed the “New Dropbox” – has enraged some of its core individual/SMB user base, and has given customers new reason to consider switching. Meanwhile, management’s recent attempt to reaccelerate growth appears to be falling flat. Spruce Point finds overwhelming evidence that the story has changed: Dropbox is a decelerating business in an increasingly low value-added space, with little network effects or barriers to entry. Dropboxs (“DBX” or “the Company”) was once seen – and is still seen by most investors – as the quintessential Silicon Valley software unicorn: a fast-growing, highly cash-generative SaaS company with a sticky customer base and a long runway for upsells.
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