Morgan Stanley recently dropped its valuation of Dropbox by 25%. T. Rowe Price has cut its valuation by 50%. The reason, among other things, is that Dropbox has growing competition, and much of it is from larger companies that have more balance sheet and marketing firepower. Dropbox’s user base could be cannibalized to the point where it does not have a critical mass of customers at all, at least not one that pays for its services.
Experts have warned for over a year that Dropbox will have a long-term problem in battling Alphabet Inc.’s (NASDAQ: GOOGL) Google Drive and similar products from Microsoft Corp. (NASDAQ: MSFT) and a slew of smaller competitors. Larger companies have created similar services, which are bundled with their more traditional products. Among these are Salesforce.com Inc. (NYSE: CRM) and Oracle Corp. (NYSE: ORCL). As long as their customers want Dropbox-like services, they will continue to press aggressively into the market.
According to The New York Times, Dropbox has 400 million customers and 150,000 paid customers, each of whom pays $150 per seat. Sheer size is not a measure of success, particularly when the mass is based on a free service. The paper also points out that publicly traded company Box Inc. (NYSE: BOX) has a valuation of $1.8 billion. Its stock sits at $11.50, down from its high of $20.65, moving closer to a plunge of 50%.
The tech markets are filled with start-ups so promising that an army of competition enters the market. The competition often drives down margins as these companies fight for market share.
Dropbox no longer has a unique product, or even close to one. T. Rowe Price and Morgan Stanley have made the point that the valuation of Dropbox is on the way down. Neither has suggested that their investments will recover.
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