On Wednesday, BofA Securities maintained their Underperform rating on Dropbox (NASDAQ:DBX), with a consistent price target of $28.00. The decision comes as Dropbox, currently valued at $9.23 billion in market capitalization and maintaining impressive gross profit margins of 82.3%, announced a new share buyback program, authorizing the repurchase of an additional $1.2 billion in shares.
This new authorization adds to the already existing $519 million remaining from previous buybacks as of the end of the third quarter of 2024. According to InvestingPro analysis, the company currently appears undervalued based on its Fair Value metrics.
The analyst from BofA Securities acknowledged the new buyback program, recognizing it as a positive step in returning capital to shareholders. The move was anticipated, aligning with prior statements from Dropbox's management regarding capital returns. The analyst noted that their financial model had already accounted for buybacks exceeding the prior authorization.
InvestingPro data reveals this is part of a broader pattern, with management consistently demonstrating aggressive share repurchase behavior - one of several key insights available in the comprehensive Pro Research Report covering 1,400+ US stocks.
With the latest buyback plan, the total authorization for repurchases by Dropbox now represents approximately 19% of the company's current market capitalization. Despite this, the analyst expressed caution, pointing to the uncertain pace of the share repurchases. Furthermore, Dropbox is described as being in the midst of a business transition, with its core file synchronization and sharing services having reached maturity.
The reiteration of the Underperform rating and the $28 price target reflects the analyst's stance on Dropbox's stock, considering both the new buyback program and the company's ongoing business developments.
In other recent news, Dropbox Inc. has secured a $2 billion loan and initiated a $1.2 billion stock repurchase program, with the financing primarily arranged by Blackstone (NYSE:BX) Credit & Insurance.
The company has also announced a significant workforce reduction of 20% during its Q3 2024 Earnings Call, focusing more on its new AI-powered product, Dropbox Dash. Despite a slight year-over-year revenue increase of 0.9% to $639 million, Dropbox gained approximately 19,000 new paying users and reported a Non-GAAP net income of $190 million.
Dropbox Dash, designed for businesses, aims to address cloud content organization and security challenges. The company has projected its Q4 revenue to be between $637 million and $640 million, with a full-year forecast of $2.542 billion to $2.545 billion. However, due to severance costs from workforce reductions, the free cash flow expectations for 2024 have been lowered to $860 million to $875 million.
Looking ahead, Dropbox expects its 2025 constant currency revenue to remain flat compared to 2024. The Non-GAAP operating margin is expected to expand by approximately 150 basis points in 2025, with free cash flow projected at or above $950 million.
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