Dropbox (NASDAQ:DBX) Posts Q1 Sales In Line With Estimates, Customer Growth Accelerates

Full Report / May 09, 2024

Cloud storage and e-signature company Dropbox (Nasdaq: DBX) reported results in line with analysts' expectations in Q1 CY2024, with revenue up 3.3% year on year to $631.3 million. It made a non-GAAP profit of $0.58 per share, improving from its profit of $0.42 per share in the same quarter last year.

Dropbox (DBX) Q1 CY2024 Highlights:

  • Revenue: $631.3 million vs analyst estimates of $628.6 million (small beat)
  • Operating profit (non-GAAP): $230.7 million vs analyst estimates of $207.0 million (11.4% beat)
  • EPS (non-GAAP): $0.58 vs analyst estimates of $0.50 (16.4% beat)
  • Guidance will be given on the earnings call
  • Gross Margin (GAAP): 83.2%, up from 80.9% in the same quarter last year
  • Free Cash Flow of $166.3 million, down 12.6% from the previous quarter
  • Customers: 18.16 million, up from 18.12 million in the previous quarter
  • Market Capitalization: $7.89 billion

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.

Houston came up with the idea when he realised that he didn't have his work USB drive on him, while sitting on a bus to New York for a weekend. He saw that a shared folder on the cloud would remove the need for a physical drive and he started coding the product (for himself) while still on the bus. And so blossomed a passion for the file-sharing product, which he named Dropbox after the communal folder he and his friends would use during LAN parties, back in their teens. Today, over half a million organisations use Dropbox to securely store and collaborate on all manner of file types.

From its inception, Dropbox saw viral growth because when one person used it to share a folder with another, the second person would have to create a dropbox account. From the early days, it was clear that Dropbox would face a crowded field, but by moving first and growing free users quickly, the company was able to become a trusted name in cloud storage. Since then, it has expanded into electronic signatures, but to this day organisations can sign up and try the solution for free, at least initially.

Document Management

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.

Dropbox faces competition from large organizations that provide cloud content management solutions such as Microsoft (NASDAQ:MSFT), Alphabet (NASDAQ:GOOG) and Box (NYSE:BOX).

Sales Growth

As you can see below, Dropbox's revenue growth has been unremarkable over the last three years, growing from $511.6 million in Q1 2021 to $631.3 million this quarter.

Dropbox Total Revenue

Dropbox's quarterly revenue was only up 3.3% year on year, which might disappoint some shareholders. On top of that, the company's revenue actually decreased by $3.7 million in Q1 compared to the $2 million increase in Q4 CY2023.

Looking ahead, analysts covering the company were expecting sales to grow 1.6% over the next 12 months before the earnings results announcement.

Customer Growth

Dropbox reported 18.16 million customers at the end of the quarter, an increase of 40,000 from the previous quarter. That's a little better customer growth than last quarter but a bit below what we've typically seen over the last year, suggesting that the company may be reinvigorating growth.

Dropbox Customers


What makes the software as a service business so attractive is that once the software is developed, it typically shouldn't cost much to provide it as an ongoing service to customers. Dropbox's gross profit margin, an important metric measuring how much money there's left after paying for servers, licenses, technical support, and other necessary running expenses, was 83.2% in Q1.

Dropbox Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.83 left to spend on developing new products, sales and marketing, and general administrative overhead. Significantly up from the last quarter, Dropbox's excellent gross margin allows it to fund large investments in product and sales during periods of rapid growth and achieve profitability when reaching maturity.

Cash Is King

If you've followed StockStory for a while, you know that we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can't use accounting profits to pay the bills. Dropbox's free cash flow came in at $166.3 million in Q1, up 20.5% year on year.

Dropbox Free Cash Flow

Dropbox has generated $787.7 million in free cash flow over the last 12 months, an eye-popping 31.2% of revenue. This robust FCF margin stems from its asset-lite business model, scale advantages, and strong competitive positioning, giving it the option to return capital to shareholders or reinvest in its business while maintaining a healthy cash balance.

Key Takeaways from Dropbox's Q1 Results

We were impressed by Dropbox's strong growth in customers this quarter and strong beat on operating profit. We were also glad its gross margin improved. On the other hand, its billings unfortunately missed analysts' expectations. Overall, this quarter's results seemed fairly positive and shareholders should feel optimistic. The stock is up 2.7% after reporting and currently trades at $23.75 per share.

Is Now The Time?

When considering an investment in Dropbox, investors should take into account its valuation and business qualities as well as what's happened in the latest quarter.

We cheer for everyone who's making the lives of others easier through technology, but in case of Dropbox, we'll be cheering from the sidelines. Its revenue growth has been weak over the last three years, and analysts expect growth to deteriorate from here.

Dropbox's price-to-sales ratio based on the next 12 months is 3.1x, suggesting the market has lower expectations for the business relative to the hottest tech stocks. While there are some things to like about Dropbox and its valuation is reasonable, we think there are better opportunities elsewhere in the market right now.

Wall Street analysts covering the company had a one-year price target of $29.33 right before these results (compared to the current share price of $23.75).

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