Dropbox Stock a Hit, but Tech IPOs Are Dangerous

Dropbox (Nasdaq:DBX) stocks rebounded in early trading Friday, initially trading above $30 per share, a 43% increase from its $21 initial public offering price. There are certainly many appraisals of Dropbox by tech investors, but in recent years, the highly publicized initial public offerings are not common.

Dropbox IPO has valued the company at approximately US$8.2 billion and is the largest technology company since the publication of Snapchat’s parent company Snap, Inc. (SNAP) in March last year.

It is said that IPOs are listed more than 25 times, which shows that the demand for Dropbox stocks is huge. In February, Dropbox reported more than 500 million registered users of its cloud storage services, and revenue in 2017 exceeded US$1 billion. Dropbox reported a net loss of $210.2 million in 2016 and a loss of $111.7 million in 2017.

Technology investors can not help recalling Snap and initially got a similar hot start, gaining 44% in the first day of trading. Unfortunately, these benefits are short-lived. After a little more than a year, Snap’s share price is now about 3.1% lower than its IPO price.

Snap is not a dazzling technology stock that disappointed early investors. In fact, in the year after the first transaction, 8 of the 10 major technology industry IPOs have fallen by 25% to 71%. Due to the decline in investor enthusiasm and the expiration of the insider lock-out period, many of these stocks have only risen steadily from there.

However, D.A. Davidson analyst Rishi Jaluria said that Dropbox is a good time for investors to abandon long-term opportunities.

“Given investors’ preferences, investors want to combine high growth and profitability, and Dropbox will really cross these two barrels,” Jaluria said on CNBC. “This is one of the fastest software companies to leapfrog $1 billion in revenue, second only to Salesforce.com, and they achieve this with a 16% free cash flow margin.”

D.A. Davidson expects Dropbox to receive its first profit this year. It expects earnings per share of 15 cents in 2018 and 23% in 2019.

Although he is bullish, Jaluria stated that the IPO may be very volatile and difficult to predict in the short term.

D.A. Davidson has a “buy” rating on DBX shares and a price target of $22.

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