Dropbox (NASDAQ:DBX) Exceeds Q1 Expectations, Stock Soars

Anthony Lee /
2023/05/04 4:44 pm EDT

Cloud storage and e-signature company Dropbox (Nasdaq: DBX) reported Q1 FY2023 results beating Wall St's expectations, with revenue up 8.66% year on year to $611.1 million. Dropbox made a GAAP profit of $69 million, down on its profit of $79.7 million, in the same quarter last year.

Is now the time to buy Dropbox? Access our full analysis of the earnings results here, it's free.

Dropbox (DBX) Q1 FY2023 Highlights:

  • Revenue: $611.1 million vs analyst estimates of $601.1 million (1.66% beat)
  • EPS (non-GAAP): $0.42 vs analyst estimates of $0.36 (17% beat)
  • Free cash flow of $138 million, down 24.1% from previous quarter
  • Customers: 17,900,000, up from 17,770,000 in previous quarter
  • Gross Margin (GAAP): 80.9%, up from 79.9% same quarter last year

“We’re pleased with our financial results in Q1, beating our guidance across all metrics," said Dropbox Co-Founder and Chief Executive Officer Drew Houston.

Founded by the long-serving CEO Drew Houston and Arash Ferdowsi in 2007, Dropbox (NASDAQ:DBX) provides a file hosting cloud platform that helps organizations collaborate and share documents.

The catch phrase "digital transformation" originally referred to the digitization of documents within enterprises. The growth of digital documents has spurred an explosion of collaboration within and between businesses, which in turn is driving the demand for e-signature and content management platforms.

Sales Growth

As you can see below, Dropbox's revenue growth has been slower over the last two years, growing from quarterly revenue of $511.6 million in Q1 FY2021, to $611.1 million.

Dropbox Total Revenue

Dropbox's quarterly revenue was up 8.66% year on year. We can see that the company increased revenue by $12.3 million quarter on quarter accelerating up on $7.8 million in Q4 2022.

Ahead of the earnings results the analysts covering the company were estimating sales to grow 6.09% over the next twelve months.

In volatile times like these we look for robust businesses with strong pricing power. Unknown to most investors, this company is one of the highest-quality software companies in the world, and their software products have been the default standard in critical industries for decades. The result is an impressive business that is up an incredible 18,152% since the IPO. You can find it on our platform for free.

Customer Growth

You can see below that Dropbox reported 17,900,000 customers at the end of the quarter, an increase of 130,000 on last quarter. That is a little slower customer growth than what we are used to seeing lately, suggesting that the customer acquisition momentum is slowing down.

Dropbox Customers

Key Takeaways from Dropbox's Q1 Results

With a market capitalization of $7.03 billion Dropbox is among smaller companies, but its more than $1.25 billion in cash and positive free cash flow over the last twelve months put it in a very strong position to invest in growth.

Dropbox topped analysts’ revenue expectations this quarter, even if just narrowly and delivered strong free cash flow. On the other hand, it was unfortunate to see the slowdown in customer growth. Overall, this quarter's results were decent. The company is up 5.93% on the results and currently trades at $20.8 per share.

Dropbox may have had a tough quarter, but does that actually create an opportunity to invest right now? It is important that you take into account its valuation and business qualities, as well as what happened in the latest quarter. We look at that in our actionable report which you can read here, it's free.

One way to find opportunities in the market is to watch for generational shifts in the economy. Almost every company is slowly finding itself becoming a technology company and facing cybersecurity risks and as a result, the demand for cloud-native cybersecurity is skyrocketing. This company is leading a massive technological shift in the industry and with revenue growth of 70% year on year and best-in-class SaaS metrics it should definitely be on your radar.

The author has no position in any of the stocks mentioned.