Box and Dropbox stocks have underperformed the market since they went public. Dropbox stock is stuck where it was when it went public in 2018, while Box has jumped by just 37% from its IPO price. An investment in the Nasdaq 100 index or the S&P 500 would have had better returns.
Why Box and Dropbox stocks are struggling
Box and Dropbox are technology companies whose core product is its file storage solutions. Using their products, customers can easily store files and documents and access them anywhere through their mobile applications.
The challenge, however, is that this has become a highly competitive industry, where key companies offer similar products. Alphabet owns Google Drive, which often comes pre-installed in Android devices. It is also linked to other Google services, especially Photos.
Apple also owns iCloud, which is also installed in its devices like MacBooks, iPhones, and iPads. Microsoft has its OneDrive solution that is part of the Microsoft 365 solution. As such, a 365 customer automatically gets free file storage as part of the offerings.
On the other hand, users must first find out about Dropbox and Box, sign up, and download the applications.
The two companies have now focused mostly on having corporate customers. Again, in this, they find that companies like Amazon, Google, and Microsoft are the biggest cloud computing providers in the world. As such, many companies seeking cloud file storage solutions often turn to the main providers, a move that helps simplify their billing.
Box and Dropbox have added more tools to their offerings, and it is unclear whether they are boosting their sales. For example, they have invested in artificial intelligence tools. Dropbox acquired HelloSign in its bid to become a viable competitor to DocuSign.
Box has also grown its offerings into e-signatures, compliance, and AI document summaries. These solutions will unlikely fuel growth.
Read more: Nvidia just partnered with Dropbox on AI tools: find out more
BOX and DBX are seeing modest growth
To be clear: Dropbox and Box are still growing their businesses, with the only challenge being that they are not growing fast enough.
Dropbox’s revenue has risen from $1.66 billion in 2019 to $2.5 billion in 2023. Analysts expect that its growth will remain flat for a while. Its 2024 revenue is expected to be $2.54 billion, a 1.67% from 2023, followed by $2.56 billion next year.
Box’s revenue has also grown from $696 million in 2019 to over $1.02 billion in 2023. Analysts also expect that its revenue growth will remain in the single digits. Box’s revenue will be $1.09 billion this year, followed by $1.16 billion next year.
In contrast, other Software-as-a-Service (SaaS) companies are still seeing higher revenue growth. For example, Salesforce’s revenue growth will be 8.8% this year, while Adobe will grow by almost 10%. CowdStrike will grow by 28%, while DataDog will have a 25% growth rate.
Read more: Dropbox stock price analysis: why is DBX ailing?
Dropbox and Box stocks are undervalued
The ongoing performance of DBX and Box stocks means that the two companies have become highly undervalued. These valuation metrics are likely because investors have reset their expectations as they moved from being growth to value companies.
Box has a forward price-to-earnings (P/E) ratio of 16.7, lower than the S&P 500 index average of 21. However, its rule of 40 metric, which is calculated by adding revenue growth and margins, stands at just 17, pointing at overvaluation.
Dropbox has a forward P/E ratio is just 11, much lower than many companies. Also, its rule-of-40 value is 25.
Box and Dropbox stocks will likely remain under pressure as their growth momentum fades. Also, there are signs that their new products and offerings are not boosting their growth.
A likely solution is for the two companies to be acquired by a private equity company that will then cut costs and maximize their profits. Just this year, Blackstone and Vista Partners acquired SmartSheet, another slowing SaaS company.
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