Dropbox retreating on news that hackers broke into thousands of accounts

Shares of Dropbox, which operates the namesake cloud-storage platform, is down more than 2% in early trading on Wednesday. The market is reacting to news that thousands of accounts had been breached, allowing hackers to view and download material users stored on the platform.

About 5,000 Dropbox accounts were compromised in August, company spokesperson Tim Rathschmidt said in an email to Bloomberg. Some users received an email from the cloud-storage platform saying there had been unauthorized access to their accounts between August 4 and August 21. Dropbox told some customers that their files had been viewed, while others were told there was no evidence of this. Overall, hackers accessed files in less than a third of the compromised accounts, Rathschmidt said.

The compromised accounts were linked to Lenovo ID and were not protected by two-factor authentication, Bloomberg reports. Dropbox does not expect the breaches to have a material impact on its business, according to Rathschmidt.

Dropbox shares have surged more than 23% year to date. However, Wall Street is cautious on the stock. It has five “hold” ratings, five “sell” recommendations, and just one “buy” call.

That consensus is driven in part by stagnant revenue growth, argues Seeking Alpha analyst Andres Veurink. He calculates that Dropbox revenue grew at an average annual rate of 15.4% over the last 10 years, with the pace slowing to 5% over the last five years. In the second quarter, the top line rose just 0.9% year over year to $631.5 million. Net income over the same period fell almost 24% to $95.8 million.

Another reason for Wall Street’s caution is fierce competition: Dropbox charges for access to tools that Google and Microsoft users get for free, Veurink explains. For example, Dropbox is trying to monetize AI assistant Dash, while Copilot is already available within Microsoft 365. Dropbox launched Dash in 2023-2024, but it has “failed to generate meaningful revenue,” Veurink writes.

The average Wall Street target price for Dropbox is $32.60 per share, almost 5% below the Tuesday close.