Dropbox's (NASDAQ:DBX) Posts Q3 Sales In Line With Estimates But Customer Growth Slows Down

Kayode Omotosho /
2022/11/03 4:29 pm EDT

Cloud storage and e-signature company Dropbox (Nasdaq: DBX) reported results in line with analyst expectations in Q3 FY2022 quarter, with revenue up 7.41% year on year to $591 million. Dropbox made a GAAP profit of $83.2 million, improving on its profit of $75.6 million, in the same quarter last year.

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Dropbox (DBX) Q3 FY2022 Highlights:

  • Revenue: $591 million vs analyst estimates of $586.1 million (0.82% beat)
  • EPS (non-GAAP): $0.43 vs analyst estimates of $0.38 (14.6% beat)
  • Free cash flow of $245.2 million, up 19% from previous quarter
  • Customers: 17,550,000, up from 17,370,000 in previous quarter
  • Gross Margin (GAAP): 81.4%, up from 79.6% same quarter last year

"We delivered another strong quarter amidst an increasingly challenging macroeconomic backdrop," 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 unremarkable over the last two years, growing from quarterly revenue of $487.4 million in Q3 FY2020, to $591 million.

Dropbox Total Revenue

Dropbox's quarterly revenue was only up 7.41% year on year, which might disappoint some shareholders. We can see that the company increased revenue by $18.3 million quarter on quarter re-accelerating up on $10.3 million in Q2 2022.

Ahead of the earnings results the analysts covering the company were estimating sales to grow 5.48% 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 17,550,000 customers at the end of the quarter, an increase of 180,000 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 a little bit.

Dropbox Customers

Key Takeaways from Dropbox's Q3 Results

With a market capitalization of $7.4 billion Dropbox is among smaller companies, but its more than $1.45 billion in cash and positive free cash flow over the last twelve months put it in a very strong position to invest in growth.

This was a decent quarter for Dropbox with solid free cash flow and in-line results on the top line. On the other hand, there was a slowdown in customer growth. The company is up 4.88% on the results and currently trades at $21.45 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.