Dropbox beats the Street on every metric, sending the share price… down?
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Dropbox beats the Street on every metric, sending the share price… down?

Cloud software company Dropbox reported earnings earlier this month that demonstrated incredible strength: the company beat on revenue, earnings, and offered a higher guidance than analysts had been hoping to see. It gained more users than the consensus estimates predicted, and it was earning more revenue from each user. It says its free cash flow in 2018 will be bigger than expected, too. The company’s share price fluctuated after the release, and somehow wound up going down.

Despite an incredibly successful quarter, Dropbox’s share price is only up 5% since its IPO in March

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Source: Yahoo Finance

Dropbox reported earnings of 8¢ per share against expectations of 5¢ per share. It also brought in $316.3 million in revenue, against consensus estimates of $309.2 million. Dropbox has only been a publicly listed company for a month and a half, so we don’t have historical access to comparable figures, but the company claims this represents a 28% increase from the year-ago quarter.

According to Dropbox, it had 11.5 million users in the first quarter. CNBC claims that this implies “around 500,000” new paid users signing up during the quarter, which translates into an incredible beat against expectations. The FactSet consensus estimate was for 275,600 new paid sign-ups in the quarter, but many analysts low-balled this: RBC analysts expected to see 140,000 new paid accounts, which (according to those analysts) would represent 23% year on year growth. Analysts at D. A. Davidson suggested a 22% increase in a May 8 note.

FactSet’s consensus was that these new users would be worth $111.97 in revenue each, but expectations varied between$109.99 and 113.2. According to Dropbox, in 2017, the average revenue per user stood at $111.91. However, in this quarter, the company beat its yearly comparable, and the consensus estimates, and, even, the highest end of forecasts. It said revenue per user for the first quarter came in at $114.30.

Dropbox also offered a more generous guidance than analysts had hoped to see. The company’s chief financial officer, Ajay Vashee, said that it expects between $328 million and $331 million revenue for the second quarter of the year, while revenue for full year 2018 would come in between $1.343 billion and $1.355 billion. In comparison, consensus estimates were for guidance of $324.9 million in the next quarter, and $1.33 billion for the whole year.

In the company’s first ever earnings call, CEO Drew Houston chose to highlight the strategic advantage of running its own digital infrastructure, rather than relying on a big partner, like Amazon Web Services. He noted that: "As computing becomes a bigger part of our workloads, as machine intelligence becomes a more important part of that workload, having that flexibility to control every layer of the stack is a big advantage."

Disclosure
Dominion holds Dropbox in its Global Trends Managed Fund.


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