Dropbox shares trend higher on solid earnings and revenue beat – Business

The cloud file-sharing platform provider Dropbox Inc. delivered a decent earnings and revenue beat today as it reported its fiscal first-quarter results, giving investors something to like to offset its somewhat tepid guidance for the current quarter.

The company reported earnings before certain costs such as stock compensation of 58 cents per share on revenue of $631.3 million, up 3.3% from a year earlier. The results surpassed Wall Street’s expectations, with analysts looking for earnings of just 50 cents per share on sales of $629 million.

All told, Dropbox reported net income of $132.3 million, rising from a profit of just $69 million in the same quarter one year earlier.

Dropbox is an iconic name among enterprise workers, as the company has established itself as one of the leading providers of cloud-based file storage and sharing tools. Its software is used by thousands of companies across the world to organize, manage, share and collaborate on business documents.

Dropbox co-founder and Chief Executive Drew Houston (pictured) highlighted the company’s better-than-anticipated profitability as a reason to be excited about the prior quarter. “We recently announced a collection of product updates designed to make it even easier for our users to secure, organize and share their content across different devices, locations and platforms,” he said. “Looking ahead, we’ll stay disciplined in our operations, while investing in growth initiatives focused on building AI powered product experiences to improve distributed work for our customers.”

The company’s growth was steady across the board. It reported a total of 18.16 million paying customers at the end of the quarter, rising from 17.9 million in the same period one year ago. That’s a gain of approximately 35,000 new customers compared to the prior quarter, when it reported 18.12 million paying customers.

More impressive, perhaps, is that Dropbox continues to squeeze more money out of its expanding customer base. It said its average revenue per paying user ended the quarter at $139.59, compared to just $138.97 at the end of the same period one year ago. In addition, it reported total annual recurring revenue of $3.556 billion at the end of the quarter, up 3.6% from a year earlier.

Dropbox also reported a gross margin of 84.6%, rising from 82.4% one year ago. Gross margin is a key metric used to measure profitability that looks at how much revenue is retained after direct expenses, such as the cost of labor and materials, are subtracted from sales.

Holger Mueller of Constellation Research Inc. said Dropbox’s failure to drive significant revenue growth left it with only one option to increase its profits. “When you don’t grow, the only thing you can do is reduce costs and that is what Drew Houston and his team have done, with outgoings down by around $28 million compared to a year earlier,” he said. “Add to that the $20 million in additional revenue and some interest income, this is what made it possible for the company to double its earnings per share.”

The analyst said this shows Dropbox is heading in the right direction, but investors will want to see a few repeat performances in the coming quarters. “What would be really good is if its most recent product innovations can drive more revenue growth, as this is where it really needs to improve. But innovation doesn’t come free, so it will need to be careful when considering cuts to its R&D budget.”

While certainly not electrifying, Dropbox’s results suggest that the company is making consistent incremental gains in almost every key metric, and that may be why investors decided to forgive its somewhat disappointing guidance for the current quarter. For the second quarter, Dropbox said it sees sales of between $628 million and $631 million, the midpoint of that range coming below Wall Street’s target of $631.5 million.

Investors seemed to appreciate the results, as Dropbox’s stock, which took a big hit on the back of lower guidance three months earlier, gained just over 2% in the extended trading session. Prior to today, the stock had gained just over 6% in the past 12 months.

Photo: Web Summit/Flickr