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 first quarter fiscal 2020 earnings results after the closing bell Thursday.
Despite its strong position in home-work economy, Dropbox has been largely ignored when compared to, say, Zoom Video (ZM) which has become the WFH buzzword over the past two months as states imposed lockdown restrictions. Dropbox, which makes money by selling cloud subscriptions and office collaboration products, would seem to benefit. But investors are worried whether it can ultimately escape the shadows of its bigger competitors — namely Microsoft (MSFT), Amazon (AMZN) and Google (GOOG, GOOGL).
Despite competitive concerns, Dropbox shares are up 9% year-to-date. The company, which has developed initiatives to entice customers to switch cloud platforms, has delivered eight straight quarters of top- and bottom-line beats and has already established on strong track record for execution. What’s more, CEO Drew Houston in the Q4 earnings call said the company now aims to be profitable by the end of 2020. It would seem the market is still discounting this goal.
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. As such, on Thursday, beyond a top- and bottom-line beat, the company must demonstrate that not only can it grow its user base in the face of stiff competition, it can monetize its users to sustain long-term profitability.
For the three months that ended March, the San Francisco-based company is expected to earn 14 cents per share on revenue of $451.85 million. This compares to the year-ago quarter when earnings were 10 cents per share on revenue of $385 million. For the full year, ending December, earnings are projected to be 69 cents per share, up from 50 cents a year ago, while full-year revenue of $1.88 billion would rise 13% year over year.
The projected full-year revenue increase of 13% seems conservative, which suggests the market is still discounting any growth Dropbox could have realized due not only to rising WFH trends, but also the company’s consistent execution. In the fourth quarter, accelerating for the Q3 and Q2 and beating consensus estimates. The company reported 14.3 million paying users, up from 14 million users in Q3 and topping the 14.2 million the Street expected.
Just as important, Dropbox’s Q4 average revenue per paying user totaled $125, up from $123.15 in Q3 and higher than the consensus estimate of $123.81. Not only does this suggests the company is feeling little-to-no competitive pressure, it also underscores how Dropbox has stabilized its churn rate, or the number of customers it loses. Notably, during the conference call with analysts, CFO Ajay Vashee said the company expects to generate over $1 billion in free cash flow by 2024.
Given the rate it the company is now monetizing its user base, including the company’s confident fiscal year 2020 profit forecast, it’s tough to bet against Dropbox, especially at a time when the WFH surge 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.