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No, but they have extremely high GM and continually are generating more FCF year of year: https://www.marketwatch.com/investing/stock/dbx/financials https://ww

by mbesto 7y ago

No, but they have extremely high GM and continually are generating more FCF year of year: https://www.marketwatch.com/investing/stock/dbx/financials https://www.marketwatch.com/investing/stock/dbx/financials https://www.marketwatch.com/investing/stock/dbx/financials/cash-flow https://www.marketwatch.com/investing/stock/dbx/financials/c... It would be safe to say that they are "printing cash".

kgwgk 7y ago
It’s easier to give the impression that you’re “printing cash” when a considerable part of employee compensation is paid by “giving away the company” (stock compensation expense is around 15% of revenue). They also leave out in their free cash flow calculation some relevant things (capital leases). Amazon for example provides three free cash flow calculations, Dropbox only the good-looking one. https://www.cnbc.com/2018/03/21/dropbox-may-have-intentionally-overstated-its-free-cash-flow.html https://www.cnbc.com/2018/03/21/dropbox-may-have-intentional...
- mbesto 7y ago
  Fair enough. But this doesn't neglect the fact that they're at 70% GM. They're spending 750M/750M split between SGA and R&D, which means you could basically cut those both out significantly (assuming support/hosting costs are in the COGS) and the company stops growing (on a $1B+ revenue top line) but just starts printing cash. The ~$100M in capital leases is a rounding number then. Not to mention, since their data centers appear to be capital expenditures, it means they have the possibility of extracting even more ROI out of that in the long term. PS - your article is from 2018 speaking about 2016 and 2017 numbers. Anything updated since? Dropbox has continually increase FCF YoY regardless...
  - scarface74 7y ago
    So do you think they are just wasting R&D money and it isn’t an engine to keep the company a going concern? Do you also think that the rest of the tech industry could cut their R&D and stay relevant? Servers breakdown, while we don’t have any statistics of how often Dropbox needs to replace hardware, we do know how often hard drives fail at scale from Backblaze’s frequent reports.
    - mbesto 7y ago
      > So do you think they are just wasting R&D money and it isn’t an engine to keep the company a going concern? Yes and no. They are trying to grow the product breadth (collaboration for example) so they can upsell enterprise businesses. That's where most of the R&D is going. > Do you also think that the rest of the tech industry could cut their R&D and stay relevant? Yes - easily. I've personally worked with over a hundred of them and you'd be shocked to understand how sticky software is once it's been implemented. This is the dirty little secret you never heard about when discussing software valuations. > Servers breakdown, while we don’t have any statistics of how often Dropbox needs to replace hardware, we do know how often hard drives fail at scale from Backblaze’s frequent reports. As I understand it, this is where Dropbox's major capital expenses are going right now. I don't have any information on where it hits the P&L and if it's calculated in the CF statement. However, having worked with similar businesses before and calculated pro formas, there is very clearly an ROI (similar to AWS, Google and Facebook all building out their own data centers).
  - kgwgk 7y ago
    I'm not an expert in Dropbox financials, I was just pointing out that the numbers are not necessarily as good as they seem and some care is needed to compare it with other companies. I have no idea how much the capital lease adjustment would represent. If your point is that from a valuation perspective it looks better than many other companies I agree. But I'm not sure it is so easy to "print cash". If they stop developing and marketing the product revenue will decline, they are not in a segment where you can milk a stagnant product for long.
    - mbesto 7y ago
      > If they stop developing and marketing the product revenue will decline, they are not in a segment where you can milk a stagnant product for long. I would argue the exact opposite. This is one of those products where most people just "set it and forget it". As long as the desktop sync continues to work as it does for all major OS's then they most certainly can milk their product for cash. > I was just pointing out that the numbers are not necessarily as good as they seem and some care is needed to compare it with other companies. I mean, you can make the argument that any company comparison requires "care" when analyzing it. This is literally why analysts still exist. > But I'm not sure it is so easy to "print cash". I think we're getting bogged down in semantics here. For most users of Dropbox, it's literally just a file sync - that's it - and it already works fairly flawlessly (compared to their competition at least). Which means at 70% GM it requires very little effort to continually advance the product. ~$700M alone is being used to continually fuel growth. Fun question: Q: Do you know when NetSuite turned a profit for the first time? A: 2009[0] Yes that 2009, when the economy went to shit. Weird huh? [0] - https://a16z.com/2015/05/15/a16z-podcast-why-saas-revenue-is-worth-more-than-traditional-software-sales/ https://a16z.com/2015/05/15/a16z-podcast-why-saas-revenue-is...
      - scarface74 7y ago
        As long as the desktop sync continues to work as it does for all major OS's then they most certainly can milk their product for cash. iOS and MacOS have changed how they have handle third party syncing a few times over the past 4 or five years. Microsoft and Apple are both adding features to make Dropbox unnecessary and Microsoft has a large enterprise and consumer marketing budget to chip away at Dropbox’s profitable enterprise base. While Google isn’t as entrenched in the enterprise as Microsoft, it is becoming more entrenched in education and it gives away a lot more storage for free. If you think any software maker can just sit on its laurels, see what happened when MS tried that with IE.

by mbesto 7y ago

kgwgk 7y ago

It’s easier to give the impression that you’re “printing cash” when a considerable part of employee compensation is paid by “giving away the company” (stock compensation expense is around 15% of revenue). They also leave out in their free cash flow calculation some relevant things (capital leases). Amazon for example provides three free cash flow calculations, Dropbox only the good-looking one. https://www.cnbc.com/2018/03/21/dropbox-may-have-intentionally-overstated-its-free-cash-flow.html https://www.cnbc.com/2018/03/21/dropbox-may-have-intentional...

mbesto 7y ago
Fair enough. But this doesn't neglect the fact that they're at 70% GM. They're spending 750M/750M split between SGA and R&D, which means you could basically cut those both out significantly (assuming support/hosting costs are in the COGS) and the company stops growing (on a $1B+ revenue top line) but just starts printing cash. The ~$100M in capital leases is a rounding number then. Not to mention, since their data centers appear to be capital expenditures, it means they have the possibility of extracting even more ROI out of that in the long term. PS - your article is from 2018 speaking about 2016 and 2017 numbers. Anything updated since? Dropbox has continually increase FCF YoY regardless...
- scarface74 7y ago
  So do you think they are just wasting R&D money and it isn’t an engine to keep the company a going concern? Do you also think that the rest of the tech industry could cut their R&D and stay relevant? Servers breakdown, while we don’t have any statistics of how often Dropbox needs to replace hardware, we do know how often hard drives fail at scale from Backblaze’s frequent reports.
  - mbesto 7y ago
    > So do you think they are just wasting R&D money and it isn’t an engine to keep the company a going concern? Yes and no. They are trying to grow the product breadth (collaboration for example) so they can upsell enterprise businesses. That's where most of the R&D is going. > Do you also think that the rest of the tech industry could cut their R&D and stay relevant? Yes - easily. I've personally worked with over a hundred of them and you'd be shocked to understand how sticky software is once it's been implemented. This is the dirty little secret you never heard about when discussing software valuations. > Servers breakdown, while we don’t have any statistics of how often Dropbox needs to replace hardware, we do know how often hard drives fail at scale from Backblaze’s frequent reports. As I understand it, this is where Dropbox's major capital expenses are going right now. I don't have any information on where it hits the P&L and if it's calculated in the CF statement. However, having worked with similar businesses before and calculated pro formas, there is very clearly an ROI (similar to AWS, Google and Facebook all building out their own data centers).
- kgwgk 7y ago
  I'm not an expert in Dropbox financials, I was just pointing out that the numbers are not necessarily as good as they seem and some care is needed to compare it with other companies. I have no idea how much the capital lease adjustment would represent. If your point is that from a valuation perspective it looks better than many other companies I agree. But I'm not sure it is so easy to "print cash". If they stop developing and marketing the product revenue will decline, they are not in a segment where you can milk a stagnant product for long.
  - mbesto 7y ago
    > If they stop developing and marketing the product revenue will decline, they are not in a segment where you can milk a stagnant product for long. I would argue the exact opposite. This is one of those products where most people just "set it and forget it". As long as the desktop sync continues to work as it does for all major OS's then they most certainly can milk their product for cash. > I was just pointing out that the numbers are not necessarily as good as they seem and some care is needed to compare it with other companies. I mean, you can make the argument that any company comparison requires "care" when analyzing it. This is literally why analysts still exist. > But I'm not sure it is so easy to "print cash". I think we're getting bogged down in semantics here. For most users of Dropbox, it's literally just a file sync - that's it - and it already works fairly flawlessly (compared to their competition at least). Which means at 70% GM it requires very little effort to continually advance the product. ~$700M alone is being used to continually fuel growth. Fun question: Q: Do you know when NetSuite turned a profit for the first time? A: 2009[0] Yes that 2009, when the economy went to shit. Weird huh? [0] - https://a16z.com/2015/05/15/a16z-podcast-why-saas-revenue-is-worth-more-than-traditional-software-sales/ https://a16z.com/2015/05/15/a16z-podcast-why-saas-revenue-is...
    - scarface74 7y ago
      As long as the desktop sync continues to work as it does for all major OS's then they most certainly can milk their product for cash. iOS and MacOS have changed how they have handle third party syncing a few times over the past 4 or five years. Microsoft and Apple are both adding features to make Dropbox unnecessary and Microsoft has a large enterprise and consumer marketing budget to chip away at Dropbox’s profitable enterprise base. While Google isn’t as entrenched in the enterprise as Microsoft, it is becoming more entrenched in education and it gives away a lot more storage for free. If you think any software maker can just sit on its laurels, see what happened when MS tried that with IE.