Dropbox DBX reported third-quarter 2024 non-GAAP earnings of 60 cents per share, which beat the Zacks Consensus Estimate by 15.38% and increased 7.1% year over year.

DBX’s earnings beat the Zacks Consensus Estimate in all the trailing four quarters, the earnings surprise being 13.65%, on average.

Find the latest EPS estimates and surprises on Zacks Earnings Calendar.

Revenues of $638.8 million inched up 0.9% year over year and beat the consensus mark by 0.29%. Total annual recurring revenues came in at $2.579 billion, up 2.1% year over year.

What Can You Expect from DBX Shares Post Q3 Results?

Dropbox shares were slightly down following the third-quarter 2024 results. Year to date, DBX shares have declined 5.4%, underperforming the Zacks Computer & Technology sector’s return of 28.4%.

It has also underperformed the Zacks Internet Services industry and peers, including Alphabet GOOGL. While Alphabet returned 29.6%, the industry appreciated 24.3% over the same timeframe.

DBX offered positive guidance for 2024, expecting both gross and operating margins to rise on a narrower revenue base. It is suffering from stiff competition in the File Sync and Share (FSS) business amid a challenging macroeconomic environment. 

The launch of the AI-powered universal search product, Dropbox Dash, for business users in October is a noteworthy development. This is expected to boost clientele.

DBX’s Paid User Base Rises in Q3

Dropbox exited the third quarter of 2024 with 18.24 million paying users, marking sequential growth of nearly 19,000. The average revenue per paying user was $139.05 compared with $138.71 in the year-ago quarter.

DBX is a leader in the content sharing and collaboration applications category that is currently worth $12 billion, per IDC estimates. DBX currently supports more than 700 million registered users through its FSS plans and has better market share than Apple AAPL and Box BOX.

Per IDC’s May 2024 report, Dropbox enjoys a market share of 20.9%, followed by Alphabet’s Google with a 16.4% share, and Box’s 8.8%, while Apple has an 8.6% market share. Microsoft, with a 29.4% market share, was placed at #1 by IDC.

DBX’s Margins Expand in Q3

In the third quarter, Dropbox reported a non-GAAP gross margin of 84%, expanding 140 basis points (bps) year over year.

In the reported quarter, research and development expenses were $155.4 million, up 1.8% year over year. Sales & marketing expenses increased 3.7% year over year to $101 million. General & administrative expenses rose 7.3% year over year to $48.8 million.

Dropbox reported a non-GAAP operating margin of 36.2%, up 30 bps year over year.

Balance Sheet & Cash Flow

As of Sept. 30, 2024, Dropbox had cash, cash equivalents and short-term investments of $890.8 million compared with $1.06 billion as of June 30, 2024. Available liquidity was $1.36 billion as of Sept. 30. 

In the third quarter, the company reported a free cash flow of $270.1 million compared with $224.7 million reported in the previous quarter.

In second-quarter 2024, more than 11 million shares were repurchased, totaling $260 million. As of the end of the second quarter, approximately $868 million remained under the current repurchase authorization.

Dropbox Raises 2024 Margin Guidance

For the third quarter of 2024, Dropbox expects revenues between $635 million and $638 million. The company expects a forex tailwind of less than $0.5 million. 

Non-GAAP operating margin is expected to be around 32%.

For 2024, it expects revenues between $2.542 billion and $2.545 billion (compared with previous guidance of $2.540-$2.550 billion). At constant currency, revenues are expected between $2.538 billion and $2.541 billion (compared with previous guidance of $2.537-$2.547 billion).

The company expects gross margin to be 84% (up from the previous guidance range of 83-83.5%) for the full year. Non-GAAP operating margin is expected to be roughly 36% (up from the previous guidance range of 33.5-34%).

Dropbox expects free cash flow between $860 million and $875 million (down from previous guidance between $910 million and $950 million).

Zacks Rank

Currently, Dropbox carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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