Ignore the Drop: Analysts Say Dropbox’s Stock Decline Is Short-Lived

Analysts say the share price decline is temporary after Dropbox, Inc. (DBX) plunged over 7% in early morning trading on Friday on concerns over departing COO.

“This is like putting a beach ball underwater,” says Cannacord Genuity analyst Richard Davis. “It will pop up.”

He added that the decline is likely driven by people less familiar with the company, who are “spooked” by the revelation.

“The (fact) that COO departure is a material issue is frankly mind-numbing,” he said. “This is the problem with new IPOs: they’re fresh and people are new to the story. I get it, buyers can get scared, but in the longer-term view we think you can make money on this stock.”

Davis said he is keeping his ‘buy’ rating on the stock and set a price target of $38.

Giving advice to shareholders of Dropbox, Davis drew a parallel to cloud computing pioneer Salesforce.com, Inc (CRM) .

“I’m not saying Dropbox is Salesforce, but Salesforce dropped 50% multiple times in its first five years and now it’s up 30-fold. You had to have a stomach of steel.”

On Thursday, Dropbox posted a strong quarter and beating analysts’ estimates on earnings per share and revenue.

CEO Drew Houston emphasized the “critical part” COO Dennis Woodside has played in the company’s during an August 9 earnings presentation, noting the integral part to Dropbox’s growth thus far.

“It’s hard to overstate Dennis’s impact on Dropbox,” he said. “When he started, we had a $200 million in revenue and our company was a fraction of the size. And during his time here, we’ve grown into a publicly traded company with over $1 billion in annual revenue and a dozen offices around the world.”

Analysts took note of the issue, with JP Morgan analyst admitting “losing COO Dennis Woodside is a bit of a disappointment” in a note on August 10.

Murphy maintained an overweight rating and a price target of $35, expressing his optimism for the stock despite the discontent with the leadership change.

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