Increased profitability, strong cash flow, and innovation into artificial intelligence is starting to make Dropbox DBX stock appealing among the Zacks Internet-Services Industry, which is in the top 14% out of 250 Zacks industries.

With its cloud-based collaboration platform expanding, Dropbox shares may appeal to growth and value investors. Considering such, Dropbox stock sports a Zacks Rank #1 (Strong Buy) and lands the Bull of the Day after exceeding its Q3 expectations earlier in the month.

Increased Profitability Overview

Operating as a file hosting service, Dropbox synchronizes personal cloud and enterprise software to create, access, and share digital content.

Dropbox’s paying users stood at 18.24 million at the end of Q3 2024, up from 18.17 million in the comparative quarter. Enhancing its operating efficiency, Q3 EPS was slightly up to $0.60 and impressively topped the Zacks EPS Consensus of $0.52 a share.

Third quarter sales of $638.8 million increased 1% from a year ago and edged estimates of $636.93 million. Most intriguing and indicative of more upside in Dropbox stock is that earnings estimate revisions for fiscal 2024 and FY25 are up 7% and 9% in the last 30 days respectively. Furthermore, Dropbox's annual earnings are now expected to increase over 20% this year and are projected to rise another 9% in FY25 to $2.62 per share.

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Stronger Cash Flow

Piggybacking on Dropbox's operational efficiency, free cash flow increased 9% year over year to a quarterly record of $270.1 million as shown in the chart below.

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Dropbox Dash (AI Prospects)  

Making good use of its free cash flow, Dropbox has planned to expand and innovate its platform. During its Q3 report, Co-founder and CEO Drew Houston stated Dropbox plans to leverage its customer base, trusted brand, and scale infrastructure to deliver on the company’s next phase of growth.

Expansion into AI may interest investors in particular, with Dropbox Dash being an AI-powered universal search tool designed to help users find, organize, and share content across various apps and platforms.

Dropbox’s Attractive P/E Valuation 

With Dropbox focusing on the next phase of growth, its valuation should attract value investors. To that point, DBX trades under $30 and at a very reasonable 11.7X forward earnings multiple.

This is a sharp discount to the S&P 500’s 25.1X and the Zacks Internet-Services average of 23.5X with some of the notable names in the space being Shopify SHOP and Uber Technologies UBER.

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Bottom Line

Positive earnings estimate revisions are starting to magnify Dropbox’s attractive P/E valuation and EPS growth. With now appearing to be an ideal time to buy Dropbox’s stock, the company’s innovation is starting to make DBX look like a viable long-term investment as well.  

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