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Shares of Dropbox (DBX - Free Report) declined 4.9% on Nov 6, despite the company posting better-than-expected third-quarter 2020 results.
Dropbox reported third-quarter 2020 non-GAAP earnings of 26 cents per share that beat the Zacks Consensus Estimate by 36.8% and doubled from the figure reported in the year-ago quarter.
Revenues of $487.4 million beat the Zacks Consensus Estimate by 1%, while increasing 13.8% on a year-over-year basis. On a constant-currency basis, revenues increased 14% year over year. Increases in the number of paying users due to remote work trend drove the quarterly results.
The company also raised revenue guidance for 2020. Dropbox now forecasts revenues between $1.907 billion and $1.909 billion. Earlier, management had guided revenues between $1.891 billion and $1.901 billion. The Zacks Consensus Estimate is pegged at $1.9 billion.
On a year-to-date basis, the stock has returned 6.9% compared with the industry’s rally of 34.3%.
Quarter in Details
Average recurring revenues or ARR was $1.981 billion, up 12% on a year-over-year basis. Increases in paying users and adoption of premium plans drove ARR growth.
Paying users came in at 15.25 million, up 8.9% on a year-over-year basis.
Average revenue per user (ARPU) stood at $128.03 in the third quarter of 2020, up 4% year over year.
In the third quarter, management adopted a Virtual First strategy under which the company will utilise both remote work and on-premises way of working. Management added that the work that can be executed single-handedly will be done remotely but the tasks that require collaboration with team members will be executed in the company’s offices that are now known as Dropbox Studios.
Management expects Virtual First strategy to help in optimum resource utilisation and create a streamlined organisation. However, the company anticipates to record $400-$450 million as impairment charges (GAAP basis) associated with this strategy in the fourth quarter of 2020 as well as in the first half of 2021.
Notably, HelloSign witnessed strong traction in the quarter under review. HelloSign now boasts of 21 additional languages and management expects the product to gain a solid footing in international markets, courtesy of the extensive awareness campaign. HelloSign is an e-signature vendor that was acquired by Dropbox for $230 million in 2019.
In the reported quarter, Dropbox unveiled Data Migration and Creative Tools to help users, especially media professionals, with their work. Creative Tools help to securely transfer large media files and enable frame-based comments.
Data Migration add on will help users securely migrate files and permission to Dropbox Business from any cloud storage location.
Dropbox teamed up with Adobe (ADBE - Free Report) to roll out Dropbox Transfer for Adobe Creative Cloud tool. Moreover, Dropbox also upgraded its integration with Zoom Video’s (ZM - Free Report) app. With the enhanced product integration, customers on the Zoom platform can utilise the Dropbox Zoom app to share notes with team members during a meeting as well as compile an agenda for the next meeting.
Margins
Dropbox’s non-GAAP gross margin in the quarter was up 330 basis point (bps) year over year to 80% in the third quarter of 2020.
Meanwhile, total operating expenses of $354.2 million, increased 3.6% year over year, mainly due to higher research and development expenses.
The company reported non-GAAP operating margin of 23% compared with 13.1% reported in the prior-year quarter.
Balance Sheet
As of Sep 30, 2020, Dropbox’s cash and cash equivalents (and short-term investments) came in at $1.23 billion compared with $1.12 billion as of Jun 30, 2020.
In the third quarter, net cash provided by operating activities came in at $200.9 million compared with $145.9 million reported in the second quarter of 2020.
Free cash flow was $187 million in the third quarter compared with $119.8 million reported in the second quarter of 2020.
Guidance
Dropbox expects fourth quarter 2020 revenues (constant currency) in the range of $497-$499 million. The Zacks Consensus Estimate is pegged at $491.9 million.
Further, the non-GAAP operating margin for the fourth quarter is projected between 22% and 22.5%.
For 2020, non-GAAP operating margin is expected to be 20% compared with earlier guidance of 18-18.5%.
For 2020, cash flow is now estimated in the range of $480-$490 million compared with the previous estimated range of $465-$475 million.
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Dropbox (DBX) Tops Q3 Earnings & Revenue Estimates, Ups View
Shares of Dropbox (DBX - Free Report) declined 4.9% on Nov 6, despite the company posting better-than-expected third-quarter 2020 results.
Dropbox reported third-quarter 2020 non-GAAP earnings of 26 cents per share that beat the Zacks Consensus Estimate by 36.8% and doubled from the figure reported in the year-ago quarter.
Revenues of $487.4 million beat the Zacks Consensus Estimate by 1%, while increasing 13.8% on a year-over-year basis. On a constant-currency basis, revenues increased 14% year over year. Increases in the number of paying users due to remote work trend drove the quarterly results.
Dropbox, Inc. Price, Consensus and EPS Surprise
Dropbox, Inc. price-consensus-eps-surprise-chart | Dropbox, Inc. Quote
The company also raised revenue guidance for 2020. Dropbox now forecasts revenues between $1.907 billion and $1.909 billion. Earlier, management had guided revenues between $1.891 billion and $1.901 billion. The Zacks Consensus Estimate is pegged at $1.9 billion.
On a year-to-date basis, the stock has returned 6.9% compared with the industry’s rally of 34.3%.
Quarter in Details
Average recurring revenues or ARR was $1.981 billion, up 12% on a year-over-year basis. Increases in paying users and adoption of premium plans drove ARR growth.
Paying users came in at 15.25 million, up 8.9% on a year-over-year basis.
Average revenue per user (ARPU) stood at $128.03 in the third quarter of 2020, up 4% year over year.
In the third quarter, management adopted a Virtual First strategy under which the company will utilise both remote work and on-premises way of working. Management added that the work that can be executed single-handedly will be done remotely but the tasks that require collaboration with team members will be executed in the company’s offices that are now known as Dropbox Studios.
Management expects Virtual First strategy to help in optimum resource utilisation and create a streamlined organisation. However, the company anticipates to record $400-$450 million as impairment charges (GAAP basis) associated with this strategy in the fourth quarter of 2020 as well as in the first half of 2021.
Notably, HelloSign witnessed strong traction in the quarter under review. HelloSign now boasts of 21 additional languages and management expects the product to gain a solid footing in international markets, courtesy of the extensive awareness campaign. HelloSign is an e-signature vendor that was acquired by Dropbox for $230 million in 2019.
In the reported quarter, Dropbox unveiled Data Migration and Creative Tools to help users, especially media professionals, with their work. Creative Tools help to securely transfer large media files and enable frame-based comments.
Data Migration add on will help users securely migrate files and permission to Dropbox Business from any cloud storage location.
Dropbox teamed up with Adobe (ADBE - Free Report) to roll out Dropbox Transfer for Adobe Creative Cloud tool. Moreover, Dropbox also upgraded its integration with Zoom Video’s (ZM - Free Report) app. With the enhanced product integration, customers on the Zoom platform can utilise the Dropbox Zoom app to share notes with team members during a meeting as well as compile an agenda for the next meeting.
Margins
Dropbox’s non-GAAP gross margin in the quarter was up 330 basis point (bps) year over year to 80% in the third quarter of 2020.
Meanwhile, total operating expenses of $354.2 million, increased 3.6% year over year, mainly due to higher research and development expenses.
The company reported non-GAAP operating margin of 23% compared with 13.1% reported in the prior-year quarter.
Balance Sheet
As of Sep 30, 2020, Dropbox’s cash and cash equivalents (and short-term investments) came in at $1.23 billion compared with $1.12 billion as of Jun 30, 2020.
In the third quarter, net cash provided by operating activities came in at $200.9 million compared with $145.9 million reported in the second quarter of 2020.
Free cash flow was $187 million in the third quarter compared with $119.8 million reported in the second quarter of 2020.
Guidance
Dropbox expects fourth quarter 2020 revenues (constant currency) in the range of $497-$499 million. The Zacks Consensus Estimate is pegged at $491.9 million.
Further, the non-GAAP operating margin for the fourth quarter is projected between 22% and 22.5%.
For 2020, non-GAAP operating margin is expected to be 20% compared with earlier guidance of 18-18.5%.
For 2020, cash flow is now estimated in the range of $480-$490 million compared with the previous estimated range of $465-$475 million.
Zacks Rank & Stock to Consider
Dropbox currently carries a Zacks Rank #3 (Hold).
A better-ranked stock in the broader technology sector is NVIDIA (NVDA - Free Report) , which sports a Zacks Rank #1 (Strong Buy), at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
NVIDIA is set to report earnings on Nov 18.
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The biotech sector is projected to surge beyond $775 billion by 2024 as scientists develop treatments for thousands of diseases. They’re also finding ways to edit the human genome to literally erase our vulnerability to these diseases.
Zacks has just released Century of Biology: 7 Biotech Stocks to Buy Right Now to help investors profit from 7 stocks poised for outperformance. Our recent biotech recommendations have produced gains of +50%, +83% and +164% in as little as 2 months. The stocks in this report could perform even better.
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