What’s happening: Shares of Dropbox spiked as much as 16% in extended trading after the cloud-based file-sharing service reported fourth-quarter results, beating both revenue and earnings estimates.
What happened: Dropbox surpassed its IPO price of $21 per share following an upbeat quarterly report. The San Francisco, California-based company saw an increase in paying customers, despite its price hike. Management’s announcement of a $600 million share buyback program and higher forecast also boosted investor sentiment.
While investors rejoice the recent results, Dropbox and other cloud-service providers face increasing security threats.
- Dropbox reported a net loss of $6.6 million, versus a loss of $9.5 million in the same quarter a year earlier.
- Dropbox’s adjusted quarterly profit came in at 16 cent per share, up from 10 cent per share in the same quarter in 2018. The figure was higher than the consensus estimate of 14 cents per share.
- The company announced 19% growth in quarterly sales to $446 billion, beating expectations of $443 million.
Dropbox reported an increase in paying subscribers to 14.3 million at the end of the fourth quarter, versus 14 million users in the earlier quarter. Average revenue per paying user rose 5% to $125.
Why it matters: Despite higher prices, Dropbox maintained its trend of constant subscription growth in the latest quarter. The launch of Dropbox Spaces in 2019 lifted the company’s results. Dropbox Spaces allows its customers to build smart workspaces for mitigating technology-related distractions.
Rivals Google and Microsoft have been posing stiff competition for Dropbox, with their free cloud storage service. However, the launch of new features and a major portfolio revamp have given Dropbox an edge over competition. The company has been driving its bottom-line with a “freemium” model, which gives users free access to basic services but requires them to pay for additional services.
Management projected operating margins between 28% and 30% by 2024, raising the guidance from the previous range of 20% to 22%. The revenue guidance for Q1 and 2020 are at $452- $454 million and $1.89-$1.905 billion, respectively. Dropbox aims to achieve profitability on a GAAP basis by yearend.
Recent industry reports have indicated that the cloud storage service market is primed for major growth, which bodes well for Dropbox.
On the other hand, hackers are becoming more sophisticated in phishing, delivering malware and data theft, using the cloud to cover their tracks. There’s concern around cybercriminals increasingly using Dropbox, along with Google Drive and other cloud-based services. Recent news of a group of Chinese hackers relying on Dropbox file hosting and sharing service to carry out their malintent caused concern over the company’s image. In fact, this group of cybercriminals operate under the name DRBControl, with DRB being the short-form of Dropbox.
How shares responded: Dropbox shares had been on a downward trend since the company went public two years ago. The stock has tumbled around 27% over the last 12 months, significantly underperforming the S&P 500 index, which spiked 21.6% in the same period. Since the beginning of 2020, however, Dropbox shares have been on the path to recovery.
What to watch: The market will watch the Nasdaq 100, where Dropbox is a major constituent. Investors will keep an eye on services unveiled by rivals Microsoft and Google, as both are household names and their services are free. Reports on the growth of security threats will also be in focus.