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Dropbox COO Departure Overshadows Strong Q2 Earnings Report

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For the most part, Dropbox’s (DBX - Free Report) earnings announcement yesterday couldn’t have gone any better. The cloud-based platform that enables users to store and share content online posted stellar results for the latest quarter.

Dropbox posted earnings per share of $0.11, beating Zacks Consensus estimates by 83.33%. Revenues totaled $339.2 million, representing 27% growth year over year. The company also provided strong guidance, raising its full-year and next-quarter revenue expectations.

Overall, the Q2 earnings report seemed to indicate a management team that was pushing the company in the right direction. That is exactly why shares of Dropbox fell 9.82% on Friday due to changes in executive leadership, despite the impressive report.

Along with its earnings, Dropbox announced that respected COO Dennis Woodside will be stepping down from the company in early September. Woodside had been an integral part of the company and he helped oversee its IPO in March.  In the earnings presentation, CEO Drew Houston remarked, “It’s hard to overstate Dennis’s impact on Dropbox.” Clearly, the market agrees with that statement.

While this could simply be a short-term issue and a market overreaction, the company is facing persisting challenges as well.

Dropbox is operating in an extremely competitive landscape with major tech companies like Amazon (AMZN - Free Report) , Alphabet’s Google (GOOGL - Free Report) , and Microsoft (MSFT - Free Report) all having similar cloud platforms. This has lead to a price war where players keep lowering prices to compete, which favors the larger companies. Dropbox can’t afford to heavily discount and lose money in the same way that the major tech companies can.

Another issue will be finding ways to drive adoption of its paid plans in order to increase monetization of the platform. The regular version of Dropbox is free to use, and the platform offers various subscription tiers from there.

The company has been able to increase total paying users to 11.9 million, up from 9.9 million in the year-ago quarter. However, that growth is a deceleration from the 24% year-over-year increase Dropbox had in the first quarter.

Moving forward, it is vital for the company to show it can keep growing its paid user base and compete with the big name players in tech. It will certainly be an uphill battle, especially with one of its main leaders now gone. 

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