Deltec Think About This - Killing Me Microsoftly September 16, 2020 | Page 7

Think About This
INVESTMENT RESEARCH
To add to the pain, Dropbox has been slow and unsuccessful at developing additional productivity
features. Management’s strategy appears to be offering workarounds to minor inconveniences in other
company’s products (e.g. live collaboration on Microsoft Word), unrealistic attempts to penetrate
unprofitable negative-growth segments (e.g. Mailbox email), or repackaging plans with existing features
and minimal new technology (e.g. Dropbox Pro to Plus). We don’t think Dropbox is competitive in the
enterprise space either.
Management has been unable to monetize their large installed base. At the same time, customer
acquisition costs are rising. We expect Sales and Marketing spend to exceed the current 22% of revenue in
years to come. And finally, we think a wave of Capex is required as the installed capacity is aging. None of
this bodes well for cash flow, which remains the bull case on the stock. It certainly doesn’t help when trying
to defend your market from a pack of large predators.
DROPBOX LTM SALES & MARKETING SPEND ($ MILLIONS)
$500
$450
$400
$350
$300
$250
$200
$150
$100
$50
$0
$440
$423 $422
$314
$251
2016 1Q17 2Q17 3Q17 4Q17 2017 1Q18 2Q18 3Q18 4Q18 2018 1Q19 2Q19 3Q19 4Q19 2019 1Q20 2Q20
Source: Company Filings, Deltec
DROPBOX LTM CAPEX AS % OF REVENUE
10%
9%
8%
7%
6%
5%
4%
3%
2%
1%
0%
8.2%
7.0%
4.5%
2.3%
2Q17 1Q18 2Q18 3Q18 4Q18 2018 1Q19 2Q19 3Q19 4Q19 2019 1Q20 2Q20
Source: Company Filings, Deltec
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Deltec Bank & Trust Limited