2 Stocks That Could Be Acquisition Targets In 2021: DropBox, Yelp

: DBX | Dropbox, Inc. -  News, Ratings, and Charts

Like most business activities, mergers, and acquisitions (M&A) took a hit with the onset of the COVID-19 pandemic. Uncertainty about any given company’s survival and growth prospects made many a corporate take pause with regard to M&A deals. However, economic activity started to rebound in the third quarter, with August 2020 alone seeing the execution of nine M&A deals worth $5 billion or more. Because the economic recovery is expected to continue, such deals should increase as stronger companies try to position themselves to the advantage of an anticipated favorable business environment.

The sky-high stock valuations of major tech companies could lead to more deal-making on their part because they will suffer minimal share dilution in acquiring weaker companies in exchange of their shares. Moreover, with interest rates at historic lows, any borrowing needed to fund deals is now cheaper than ever.

With a favorable environment, we think there should be a wave of M&A in the coming quarters. As such, investors could keep an eye on Dropbox, Inc. (DBX - Get Rating) and Yelp Inc. (YELP - Get Rating).

Dropbox, Inc. (DBX - Get Rating)

DBX provides a collaboration platform worldwide. The company’s platform allows individuals, teams, and organizations to share files and cloud content for free through its website or app, as well as upgrade to a paid subscription plan for premium features. DBX has more than  600 million registered users across 180 countries worldwide.

DBX launched its IPO in March 2018. The offering was 25 times oversubscribed. The company raised $756 million in its IPO. The initial euphoria around the offering drove the stock to a high at $43.50 in mid-June 2018. However, DBX has been suffering post IPO blues. The stock has since lost more than 22% versus its IPO price. DBX’s revenue has grown at a CAGR of 21.3%, over the past three years, but the company was not profitable until 2020. It has earned $1.86 billion in the trailing 12 months and posted EPS of $0.19. However, DBX’s paying users, the primary source of its revenue, are growing too slowly. As of September 2020, the company had 15.25 million paying users, representing a mere 2.5% of its total user base. Despite focusing on remote workflow optimization and adding new product features such as HelloSign, Passwords, and Spaces, DBX has been unable to convert free users into premium customers.

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