DA Davidson Says Its Dropbox Estimates Could Be Conservative: 'We Believe Shares Should Outperform'

Ahead of Dropbox Inc. (NASDAQ: DBX)'s IPO, D.A. Davidson initiated coverage of the company with a Buy rating and $22 price target.

The stock listed on the Nasdaq March 23 and recorded a 35.6-percent gain on its debut. The stock is up 43 percent through Friday since its listing. 

The Analyst

D.A. Davidson analyst Rishi Jaluria maintained a Buy rating on Dropbox and raised the price target from $22 to $36.

The Thesis

An investment in Dropbox now is less risky than buying shares before the company went public, Jaluria said in a Monday note.

D.A. Davidson raised its 2019 estimates for Dropbox, and Jaluria said even more upside could be realized than what's reflected in the sell-side firm's estimates. The firm expects Dropbox to notch 16-percent customer growth and 0.7-percent ARPU growth over the next two years. 

"While we acknowledge there may be further volatility in Dropbox's share price in the near term, especially as [the] lock-up period expirations approach, we believe shares should outperform over the next 12-18 months." 

Dropbox is unlikely to invest in an enterprise sales force, as its focus is on teams rather than massive enterprise-wide deployments, Jaluria said. 

What differentiates Dropbox from Alphabet Inc (NASDAQ: GOOG) (NASDAQ: GOOGL)'s Google Drive and Microsoft Corporation (NASDAQ: MSFT)'s OneDrive is that Dropbox aims to serve as "a neutral third-party that can operate well with products from Microsoft, Google, Adobe Systems Incorporated (NASDAQ: ADBE), Slack and others," the analyst said. 

The Price Action

Dropbox shares were down 3.8 percent at the time of publication Monday. 

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Photo courtesy of Dropbox.