Last Update 26 Jan 26

Fair value Increased 1.59%

DBX: Q3 Margin Strength And Guidance Shifts Will Shape Fair Value Outlook

Analysts have inched their fair value estimate for Dropbox higher to $28.57 from $28.13, reflecting updated assumptions around a slightly higher discount rate, a modest decline in expected revenue growth, a marginally stronger profit margin, and a lower future P/E multiple in light of recent research that includes RBC Capital's price target move to $38 after what it called decent Q3 results.

Analyst Commentary

Recent Street research on Dropbox has focused on how the latest quarterly results line up against expectations and what that might mean for valuation. While the specific fair value estimate used here is $28.57, one set of bullish analysts has set a higher reference point with a price target of $38 after reviewing the Q3 numbers.

Bullish Takeaways

Bullish analysts point to Q3 revenue, billings, and operating margin that all came in ahead of Street estimates, which they see as supportive of Dropbox’s ability to execute on its current business model.
The price target move to $38 from $35 suggests these analysts view the recent results as consistent with Dropbox maintaining or improving its profitability profile relative to what was previously modeled.
Stronger than expected operating margin in the quarter is being treated as an encouraging signal for Dropbox’s cost discipline, which can be meaningful for earnings power and, in turn, valuation multiples.
The combination of better than expected billings and operating margin has given bullish analysts more confidence in the quality of Dropbox’s revenue base, even with some softer metrics elsewhere.

Bearish Takeaways

Despite the generally positive Q3 surprise, annual recurring revenue was about 0.4% below expectations, which cautious analysts see as a reminder that top line momentum is not uniform across all metrics.
The fair value estimate used here incorporates a lower future P/E multiple, reflecting a degree of restraint around how much investors may be willing to pay for Dropbox’s earnings relative to prior assumptions.
Analysts have also folded in a slightly higher discount rate and a modest decline in expected revenue growth assumptions, which together point to some caution about sustaining stronger growth over time.
Even with an Outperform rating from bullish analysts, the gap between their $38 price target and the $28.57 fair value estimate highlights that not all observers are aligned on how much upside Dropbox’s execution currently justifies.

What's in the News

Dropbox raised its full year 2025 as reported revenue guidance midpoint by US$18 million to a range of US$2.511b to US$2.514b, and lifted its constant currency revenue guidance midpoint by US$17 million to US$2.508b to US$2.511b.
The company issued revenue guidance for Q4 2025, projecting US$626 million to US$629 million in revenue, or US$623 million to US$626 million on a constant currency basis.
Dropbox announced that CFO Timothy Regan will step down after five years in the role and will be succeeded by Ross Tennenbaum, currently a senior executive and president at tax software company Avalara, with the CFO transition effective December 16, 2025.
From July 1, 2025 to September 30, 2025, Dropbox repurchased 13,750,000 shares, or 5.14% of its shares, for US$389.37 million, completing a total of 37,692,239 shares repurchased, or 13.52%, for US$1.04652b under the buyback announced on December 11, 2024.
Under a separate buyback announced on September 9, 2025, the company reported no share repurchases from September 9, 2025 to September 30, 2025.

Valuation Changes

The fair value estimate has risen slightly from US$28.13 to about US$28.57 per share, reflecting updated modeling inputs.
The discount rate has moved up modestly from 9.47% to about 9.77%, which adds a bit more caution to the valuation framework.
Revenue growth assumptions now reflect a slightly larger implied decline, shifting from about a 1.06% decline to roughly a 1.34% decline.
The net profit margin edged higher from about 20.16% to roughly 20.54%, signaling a small uplift in expected profitability.
The future P/E multiple was trimmed slightly from about 16.19x to roughly 15.76x, indicating a more restrained view on how much investors may pay for earnings.

Deeper AI integration and new product tiers aim to boost user monetization, engagement, and long-term recurring revenue amid growing digital collaboration trends.
Continued operational efficiency and emphasis on security position Dropbox for stable cash flow, stronger enterprise appeal, and sustainable long-term growth.
Persistent revenue declines, rising competition, pricing pressure, slow product diversification, and elevated regulatory and operational costs threaten Dropbox's growth, profitability, and market position.

Catalysts

About Dropbox

Provides a content collaboration platform in the United States and internationally.What are the underlying business or industry changes driving this perspective?

The planned expansion and deeper integration of AI-driven productivity tools (Dash), including upcoming self-serve offerings and seamless bundling with Dropbox's existing file sync-and-share product, position the company to capture higher ARPU and accelerate recurring revenue growth as digital transformation and hybrid work drive demand for intelligent, collaborative cloud platforms.
Ongoing investments in onboarding improvements, streamlined product experiences, and personalized retention (e.g., cancellation flow redesign, Simple plan targeting mobile-first consumers) are already reducing churn and increasing user engagement, setting the stage for greater user retention and potential user base growth, positively impacting revenue stability and reducing customer acquisition costs.
Dropbox's strategy to unlock monetization from its large base of free users (700M+ registered) through new product tiers, value-added AI capabilities, and targeted conversion efforts increases the likelihood of future paying user growth and revenue expansion as broader adoption of cloud-based tools continues in both consumer and SMB/enterprise segments.
Persistent emphasis on operational efficiency-via infrastructure optimization, disciplined hiring, and lower marketing spend-has resulted in sustained improvements in non-GAAP operating margins and free cash flow, enhancing the company's ability to invest in long-term growth areas while also supporting increasing earnings and cash flow per share.
Increasing focus on data security, privacy, and third-party integrations with platforms like Slack, along with ongoing investments in backend improvements, aligns Dropbox with evolving industry-wide regulatory demands and enterprise expectations, strengthening its competitive positioning for large, security-conscious customers, and providing a foundation for stable enterprise revenue and longer-term margin improvement.

Dropbox Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?

Analysts are assuming Dropbox's revenue will decrease by 1.1% annually over the next 3 years.
Analysts assume that profit margins will increase from 19.2% today to 20.2% in 3 years time.
Analysts expect earnings to reach $494.6 million (and earnings per share of $1.88) by about September 2028, up from $485.4 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $557.3 million in earnings, and the most bearish expecting $403.3 million.
In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 16.2x on those 2028 earnings, down from 17.3x today. This future PE is lower than the current PE for the US Software industry at 36.2x.
Analysts expect the number of shares outstanding to decline by 7.0% per year for the next 3 years.
To value all of this in today's terms, we will use a discount rate of 9.47%, as per the Simply Wall St company report.

Dropbox Future Earnings Per Share Growth

Risks

What could happen that would invalidate this narrative?

Dropbox is experiencing a decline in both total revenue (down 1.4% year-over-year) and annual recurring revenue (down 1.2% year-over-year), with a projected decline in paying users of approximately 1.5% (about 300,000 users) for the full year, highlighting market saturation and persistent growth challenges that could constrain future top-line revenue and earnings growth.
ARPU (average revenue per user) declined sequentially, primarily due to the impact of lower-priced offerings like the Simple plan and downsells in managed segments, signaling increased pricing pressure and potential commoditization of the core cloud storage business, which could compress net margins over the long term.
Intensifying competition from integrated cloud productivity suites by large tech players (e.g., Microsoft, Google), as well as changes in API access and tighter control by third-party platforms (such as Slack), threaten Dropbox's ability to maintain differentiated product offerings and seamless integrations, potentially eroding both user stickiness and overall market share, with direct negative impact on revenue retention.
The company's strategy to achieve growth via new products like Dash is still in early stages, with management conceding it will take time before these initiatives have a meaningful impact on revenue; thus, failure to successfully diversify into new high-growth revenue streams could lead to stagnant or declining total revenue and difficulty justifying current valuation levels.
Expanding regulatory scrutiny around data privacy and ongoing investments in infrastructure (such as data center refresh cycles) increase compliance and operational costs, alongside heightened cybersecurity threats; these pressures could weigh on net margins and expose Dropbox to reputational and financial risks if not managed effectively.

Valuation

How have all the factors above been brought together to estimate a fair value?

The analysts have a consensus price target of $28.125 for Dropbox based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $35.0, and the most bearish reporting a price target of just $20.0.
In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $2.5 billion, earnings will come to $494.6 million, and it would be trading on a PE ratio of 16.2x, assuming you use a discount rate of 9.5%.
Given the current share price of $31.2, the analyst price target of $28.12 is 10.9% lower. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.

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Disclaimer

AnalystConsensusTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystConsensusTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that AnalystConsensusTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.

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