How much has Dropbox (DBX) benefited from the work-from-home (WFH) trend? That’s the main question investors will be focusing on when cloud storage company announces its second quarter fiscal 2020 earnings results after the closing bell Thursday.
Despite Dropbox’s strong position in home-work economy, the company has been relatively ignored when compared to, say, Zoom Video (ZM) which has become synonymous with remote work. To be sure, DBX stock — up 28% year to date — has been no slouch. But that performance pales in comparison to likes of Zoom and DocuSign (DOCU) which have surged 300% and 200%, respectively, driven by strong demand as states impose lockdown restrictions.
Dropbox, which makes money by selling cloud subscriptions and office collaboration products, is well-positioned as a WFH beneficiary. The market, however, has raised concerns about whether the company can compete with larger competitors — namely Microsoft (MSFT), Amazon (AMZN) and Google (GOOG, GOOGL). Notably, this is despite solid execution, including delivering nine straight quarters of top- and bottom-line beats.
Aiming to be profitable by the end of 2020, Dropbox has developed initiatives to entice new customers away from its larger rivals. On Thursday, investors will be eager to learn how effective its plans have been. Beyond a top- and bottom-line beat, Dropbox must demonstrate that not only can it grow its user base in the face of stiff competition, but also, and perhaps more importantly, that it can monetize its users to sustain long-term profitability.
For the three months that ended June, the San Francisco-based company is expected to earn 17 cents per share on revenue of $465.29 million. This compares to the year-ago quarter when earnings were 10 cents per share on revenue of $400.91 million. For the full year, ending December, earnings are projected to be 73 cents per share, up from 50 cents a year ago, while full-year revenue of $1.89 billion would rise 14% year over year.
While concerns about Dropbox’s competitive position are valid, the company is producing healthy cash flow margin. The company’s “New Dropbox” initiative which the management markets as more business-friendly, must demonstrate that value by delivering higher revenues and profits. That said, projected full-year revenue increase of 14% seems conservative, suggesting the market is discounting any pandemic-induced tailwind Dropbox could have realized during the quarter.
In the first quarter, the company delivered its first-ever quarterly profit, reporting adjusted EPS of 17 cents which beat the 13 cents estimate. Q1 revenue rose 18% year over year to $455 million, ahead of the consensus by about $4 million. The company reported 14.6 million paying users, up from 13.2 at the end of Q4 and topping the 14.4 million the Street expected. Just as important, Dropbox’s Q1 average revenue per user (ARPU) totaled $126.30, up from $121.04.
Not only does the rise in ARPU suggests Dropbox’s pricing power, relative to perceived competitive pressures, it also highlights the fact that its rate of churn — the number of customer losses — has stabilized. These are the main trends investors will focus on during the conference call with analysts. And as such, given the rate of user monetization, it’s tough to bet against Dropbox, especially at a time when the WFH trend will serve as tailwinds for revenue.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Richard Saintvilus
After having spent 20 years in the IT industry serving in various roles from system administration to network engineer, Richard Saintvilus became a finance writer, covering the investor's view on the premise that everyone deserves a level playing field. His background as an engineer with strong analytical skills helps him provide actionable insights to investors. Saintvilus is a Warren Buffett disciple who bases his investment decisions on the quality of a company's management, its growth prospects, return on equity and other metrics, including price-to-earnings ratios. He employs conservative strategies to increase capital, while keeping a watchful eye on macro-economic events to mitigate downside risk. Saintvilus' work has been featured on CNBC, Yahoo! Finance, MSN Money, Forbes, Motley Fool and numerous other outlets. You can follow him on Twitter at @Richard_STv.
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