Dropbox Isn't Out Of The Woods Just Yet, Nomura Says In Upgrade

The long-term trajectory for Dropbox Inc DBX remains questionable, but the elimination of near-term concerns implies the bearish case for the stock may no longer be appropriate.

The Analyst

Nomura Instinet's Christopher Eberle upgraded Dropbox from Reduce to Neutral with a price target lifted from $21 to $25.

The Thesis

Dropbox continues to face a personnel issue highlighted by the resignation of COO Dennis Woodside, Eberle said in a note. Over the years, the company has shown a "consistent pattern of churn." However, with the stock trading near its post-IPO lows of $26.08, management turnover risk is "somewhat priced-in" for the near term.

Meanwhile, Dropbox is converting hundreds of thousands of users from the free model to a subscription option, which Eberle said is "quite impressive." While the company no longer comments on enterprise customers the conversion of 400,000 or more free users to paying subscribers is enough to "carry the torch" in the near term.

Dropbox's IPO lock-up period has passed, which eliminates another overhang for the stock. It's possible new share supplies enter the market through Dropbox's venture capital investor base the fact is the expiration period "is in the rear-view mirror."

Price Action

Shares of Dropbox were trading marginally higher Tuesday at $26.36.

Related Links:

Canaccord: Pullback In Dropbox After Q2 Print 'A Gift'

Should Investors Buy The Dip In Dropbox? 4 Analysts Weigh In