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Classified in: Science and technology
Subject: Letter

Half Moon Capital, LLC Issues Letter to Board of Dropbox Urging Course Correction

Half Moon Capital, LLC is releasing its open letter to the Board of Directors of Dropbox (Nasdaq:DBX) and seeks to engage constructively on corrective course.

February 28, 2024

Members of the Board,

Half Moon Capital, LLC, is a long-term investor in Dropbox, Inc. ("Dropbox" or the "Company"). We have engaged in meaningful discussions with the Company since initiating our investment in June 2022. As paying users of the recently "deemphasized" Family Plan, and shareholders of Dropbox, we are writing to you with a unique perspective.

We believe investors have been unnecessarily pushed to assign a negative terminal value to Dropbox. This is largely driven by the decline in paying users and the corresponding bear case scenario it fuels. This appears to be largely self-inflected as we believe management has misinterpreted the Work Family Plan to be a "loophole" that required closing. While this may seem inconsequential, it accounted for over 50% of new paying user additions in 2023[1]. Besides "deemphasizing" a major source of revenue growth, we believe it has left Dropbox overly exposed to competition without an appropriate product to serve the average customer with multiple users. We find a lapse of this magnitude to be confounding.

Management's stated concern that business users on the Work Family Plan are receiving excessive value appears overblown. In its absence, Dropbox's entry level, two to six users plan, is now priced at a 50% premium to its closest competitor. As Management has routinely called out the price sensitive nature of customers, this appears ill-timed and contradictory. We view this "experiment" as having a very low probability of success and a high cost of failure. For a benchmark, Microsoft continues to offer its Family Plan for both home and office usage at an approximately 50% discount to Dropbox.

We strongly encourage the immediate return of the Work Family Plan to prevent any further value destruction. Just a few months ago, the Work Family Plan was prominently displayed, paying user count was growing and concurrently shares of Dropbox were nearing post-IPO highs. We believe Dropbox can return to this more favorable trajectory if the Board urgently addresses these lapses and corrects course.


Eric DeLamarter and Brandon Carnovale

[1] "Family Plan comprised over half of our paying user additions [last year]" ? Company response, 2/17/24

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