Dropbox Inc. shares have struggled in recent months along with other software names, but one analyst doesn’t see things getting any easier from here for the file-storage company.
“Virtually all leading indicators of growth are negative,” wrote Bernstein’s Zane Chrane, who initiated coverage of Dropbox DBX, 0.28% late Tuesday with an underperform rating and $19 target. “App monthly active users, daily active users, app downloads, number of app sessions, total time spent in app, and Google searches have all been declining in recent quarters while these same data for major cloud vendors have been much more positive.”
Shares are down 3.2% in premarket trading.
Chrane is concerned about competition in the file-storage space as well as Dropbox’s decision to raise prices on its Plus plan in May. “Raising prices on a relatively commoditized service (when already at a price disadvantage) seems to be a poor long-term growth strategy at a time when the price of cloud-storage is generally falling,” he wrote.
According to Chrane, many software companies will add new features for the same price or even lower prices to create more competitive offerings. Businesses like Adobe Systems Inc. ADBE, -0.72%, which has “a virtual monopoly” with its editing software, or Autodesk Inc. ADSK, -1.17%, which has high switching costs with its design software, may have more leverage to hike prices without incurring meaningful consumer backlash, in his view, but Dropbox doesn’t enjoy those advantages.
He’s also skeptical that the company will be able to make inroads in the office-collaboration space, which is another part of its growth aims.
“We believe the natural market structure for collaboration tools is likely to be a monopoly or duopoly, in which Microsoft MSFT, -1.32% and Slack WORK, 0.42% are the only two viable contenders,” Chrane wrote. “This, along with the fact that Dropbox does not have a fully developed enterprise sales organization puts them at a significant disadvantage in a market where network effects give first movers a huge advantage.”
The company is scheduled to report quarterly results on Thursday afternoon.
Shares of Dropbox have fallen 8% over the past three months, as the S&P 500 SPX, -0.69% is near flat.