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Why Shares of Dropbox Plunged 23.1% After Earnings

Motley Fool - Fri Feb 16, 2:24PM CST

Shares of cloud storage companyDropbox(NASDAQ: DBX) fell as much as 23.1% on Friday after the company reported earnings results. Shares were hitting their low around 3 p.m. ET. Results weren't all that bad for the fourth quarter, but investors are focused on guidance and analyst reactions today.

Results and guidance for Dropbox

Dropbox reported a 6% increase in revenue to $635 million and net income of $227.3 million, or $0.66 per share. Non-GAAP (adjusted) earnings per share were $0.50.

This topped analyst estimates of $632 million in revenue and $0.48 in earnings per share.

Where trouble emerged was with guidance. Management expects 2024 revenue to be between $2.535 billion and $2.55 billion and analysts were looking for $2.57 billion.

Analysts react swiftly

After earnings were released, analysts from Bank of America and J.P. Morgan both downgraded the stock, citing slowing growth for the business.

Downgrades can often lead to a drop in stock prices and this was piling on the guidance worry for Dropbox.

The brighter side of Dropbox's guidance

Management did say that subscriber growth would slow in 2024 after the company lost 50,000 subscribers in the fourth quarter. But it also said cost savings from ending real estate leases and layoffs will help the company generate $910 million to $950 million in free cash flow in 2024.

That means Dropbox shares trade for just 9.2 times expected 2024 cash flow. With management buying back shares aggressively, I think this could be a great value stock given the steady nature of the business with upside if new products are launched successfully.

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JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Bank of America is an advertising partner of The Ascent, a Motley Fool company. Travis Hoium has positions in Dropbox. The Motley Fool has positions in and recommends Bank of America and JPMorgan Chase. The Motley Fool has a disclosure policy.

Paid Post: Content produced by Motley Fool. The Globe and Mail was not involved, and material was not reviewed prior to publication.

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