Dropbox (NASDAQ:DBX) Posts Q4 Sales In Line With Estimates But Customer Growth Slows Down

Full Report / February 15, 2024

Customer Growth

Dropbox reported 18.12 million customers at the end of the quarter, a decrease of 50,000 from the previous quarter, suggesting that the company's customer acquisition momentum is slowing.

Dropbox Customers

Cloud storage and e-signature company Dropbox (Nasdaq: DBX) reported results in line with analysts' expectations in Q4 FY2023, with revenue up 6% year on year to $635 million. It made a non-GAAP profit of $0.50 per share, improving from its profit of $0.40 per share in the same quarter last year.

Dropbox (DBX) Q4 FY2023 Highlights:

  • Revenue: $635 million vs analyst estimates of $631.7 million (small beat)
  • EPS (non-GAAP): $0.50 vs analyst estimates of $0.48 (3.4% beat)
  • Free Cash Flow of $190.3 million, down 22.8% from the previous quarter
  • Customers: 18.12 million, down from 18.17 million in the previous quarter
  • Gross Margin (GAAP): 80.8%, in line with the same quarter last year
  • Market Capitalization: $11.21 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 unimpressive over the last two years, growing from $565.5 million in Q4 FY2021 to $635 million this quarter.

Dropbox Total Revenue

Dropbox's quarterly revenue was only up 6% year on year, which might disappoint some shareholders. Additionally, its growth did slow down compared to last quarter as the company's revenue increased by just $2 million in Q4 compared to $10.5 million in Q3 2023. While we'd like to see revenue increase by a greater amount each quarter, a one-off fluctuation is usually not concerning.

Customer Growth

Dropbox reported 18.12 million customers at the end of the quarter, a decrease of 50,000 from the previous quarter. That's slower customer growth than what we've observed in past quarters, suggesting that the company's customer acquisition momentum is slowing.

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 80.8% in Q4.

Dropbox Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.81 left to spend on developing new products, sales and marketing, and general administrative overhead. 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. It's also comforting to see its gross margin remain stable, indicating that Dropbox is controlling its costs and not under pressure from its competitors to lower prices.

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 $190.3 million in Q4, roughly the same as last year.

Dropbox Free Cash Flow

Dropbox has generated $759.4 million in free cash flow over the last 12 months, an eye-popping 30.4% 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 Q4 Results

While Dropbox exceeded analysts' revenue estimates this quarter, growth has slowed down, along side with customer acquisition. Overall, this was a mediocre quarter for Dropbox. The company is down 2% on the results and currently trades at $31.89 per share.

Is Now The Time?

Dropbox may have had a bad quarter, but investors should also consider its valuation and business qualities when assessing the investment opportunity.

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 , and analysts expect growth to deteriorate from here.

Dropbox's price-to-sales ratio based on the next 12 months is 4.4x, suggesting that the market does have lower expectations of the business, relative to the high growth tech stocks. While we have no doubt one can find things to like about the company, and the price is not completely unreasonable, we think that at the moment there might be better opportunities in the market.

Wall Street analysts covering the company had a one-year price target of $31.55 per share right before these results (compared to the current share price of $31.89).

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