Will Wall Street Care If Dropbox Beats Earnings?

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DBX stock - Will Wall Street Care If Dropbox Beats Earnings?

Dropbox (NASDAQ:DBX) reports earnings after the bell, marking its first full quarter as a publically traded company since DBX stock launched its initial public offering (IPO) on March 23. The San Francisco-based cloud storage company may beat estimates, however, competitive threats could overshadow the company’s profits and double-digit growth. Here’s what you should expect:

Analysts Expect Lower Profits, More Revenue

Analysts estimate Q2 earnings will come in at seven cents per share. They expect revenues for the quarter of $330.9 million. If the company meets estimates, it will come in one cent per share short of the earnings per share (EPS) of eight cents the company saw in the previous quarter.

Still, current estimates would represent a rise in revenues. Revenues for Q1 came in at $316.3 million.

DBX stock fell by 2.25% after its previous earnings report. This drop occurred despite the company beating analyst estimates by six cents per share. Revenues also saw a 27.6% increase from the same quarter last year and beat estimates by $7.6 million. Wall Street will watch closely to see they can beat estimates for the second quarter in a row.

DBX Stock Mired in a Trading Range

More importantly, they will monitor the stock for any moves. Since its 35% increase on the day it launched its IPO, DBX stock has found itself mired in a trading range. It has mostly traded between $28 and $34 per share since the IPO.

DBX stock spiked as high as $43.50 per share in mid-June before quickly returning to its trading range. Likewise, DBX stock bounced back from a brief drop below $27 per share in late July.

Whatever happens, fundamentals will offer few clues. If the 2018 EPS estimate of 28 cents still holds, DBX stock will maintain a forward price-earnings (P/E) ratio of almost 113. This P/E appears well ahead of itself, even if the 39.3% profit growth estimate for next year still holds.

DBX Still Faces Formidable Competition

Furthermore, a greater danger involves the size of its potential competition. The moat for DBX stock is limited to the fact that Dropbox became the first mover in the space. Secondly, it has dramatically reduced its dependence on Amazon (NASDAQ:AMZN) by building its own cloud infrastructure in the U.S.

Still, this does not change the fact that Amazon, along with Microsoft (NASDAQ:MSFT) and Alphabet (NASDAQ:GOOGL, NASDAQ:GOOG) compete in this space. For now, Google Drive stands as its most formidable competitor. However, Dropbox maintains a market cap of around $12.6 billion.

If Microsoft and Amazon start taking more market share, how will Dropbox compete with three companies that each maintain market caps of just under $1 trillion?

The Bottom Line on DBX Stock

The question surrounding earnings on DBX stock remains whether impressive earnings growth or competitive threats will have a more significant influence on the stock price. Tomorrow’s report will mark its first full quarter as a publicly-traded company. Analysts will look for signs that revenue and earnings will keep Dropbox on track for their 2018 projections.

Also, investors will want to see if the report brings news that would take DBX stock out of its trading range. Current conditions give more reason to doubt a sustained upward move.

The stock came down quickly after rocketing above $43 per share in June. Also, current earnings place the forward P/E into the triple digits. Although growth should remain in the double-digits for years to come, that may not push Dropbox stock higher.

The upcoming earnings report offers several different possibilities in the short term. However, given its high P/E and shallow moat, investors should probably temper expectations regarding this upcoming report.

As of this writing, Will Healy did not hold a position in any of the aforementioned stocks. You can follow Will on Twitter at @HealyWriting.


Article printed from InvestorPlace Media, https://investorplace.com/2018/08/wall-street-dbx-stock-earnings/.

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