If you are not using Dropbox Inc (NASDAQ: DBX), chances are you are already using an alternative or similar service which may explain why the stock comes with short interest of 43.65%.

If you are not using Dropbox Inc (NASDAQ: DBX), chances are you are already using an alternative or similar service which may explain why the stock comes with short interest of 43.65% according to Highshortinterest.com. Dropbox is a leading global collaboration platform with more than 500 million registered users across more than 180 countries that went public in March at a price of $21 a share.

In early August, Dropbox reported fiscal 2018 fiscal second quarter results with total revenue up 27% to $339.2 million while paying users totaled 11.9 million versus 9.9 million for the same period last year. Average revenue per paying user was $116.66 versus $111.19 for the same period last year. The GAAP net loss was $4.1 million versus $26.8 million in the same period last year. Cash, cash equivalents and short-term investments were $981.8 million at the end of the second quarter of 2018. Dropbox Co-Founder and CEO Drew Houston commented:

“We delivered another solid quarter of revenue growth in Q2, reflecting the strength of our unique business model. We added over a dozen new product features to our user and admin experiences, and strengthened our infrastructure, all while driving a 30% free cash flow margin. With our massive scale and continued product innovation, we’re well on our way to advancing our mission of designing a more enlightened way of working.”

However and while the earnings themselves were fine, the earnings report also included an announcement that the COO will be departing – which seemed to alarm investors but analysts were more positive. Canaccord Genuity analyst Richard Davis commented:

“This is like putting a beach ball underwater. It will pop up…. The [fact] that the COO departure is a material issue is frankly mind-numbing. 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…. 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.”

Shares also rose strongly in the summer on no apparent news and not due to any short squeeze.

Investors need to keep in mind that the regular version of Dropbox is free to use with various subscription tiers from there once users blow pass their free space allocation. The problem for Dropbox along with investors is that all of the big tech names (e.g. Amazon, Alphabet’s Google and Microsoft) have similar cloud platforms with the shorts betting that it will be difficult over the longer term to compete with these big players who can give GBs away for free to grab market share.

On the other hand, Dropbox could make an interesting acquisition target for another bigger tech company (e.g. Microsoft acquiring LinkedIn) which would trigger a short squeeze albeit at a $10 billion market cap, it would be difficult to digest for anyone other than an already large tech player.