- Dropbox posted $360.3 million in revenue in the third quarter.
- That beat Wall Street’s forecasts, but analysts’ expectations were low.
- Dropbox has been trying to break into the enterprise space, but investors and analysts see that as a big challenge, since its service was originally targeted at consumers.
- The company’s share price has been beaten up in recent months as its growth has slowed.
Dropbox staved off its doubters on Thursday — at least for the time being.
The file-hosting company reported third-quarter results that topped Wall Street’s modest expectations and offered a better-than-expected forecast for the holiday period. It also reported that its average revenue per user rose a bit from last year, a possible indication that its effort to attract business customers might be paying off.
“We delivered another quarter of strong execution,” Dropbox CEO Drew Houston said in a statement. He continued: “We’re shipping product features and updates our users love, based on a deep understanding of our customers and the tools they need to do their best work.”
Investors cheered the results. In recent after-hours trading following its report, the company’s stock was up $2.01, or 8%, to $26.75.
Wall Street remains skeptical of Dropbox
But many investors and analysts remain skeptical about Dropbox’s longer-term prospects. Analysts such as Nomura’s Christopher Eberle are concerned about its ability to attract a significant number of enterprise clients, especially since the company started off as a consumer-oriented service. Such concerns, which are shared widely on Wall Street, have weighed down the company’s stock, he said. Dropbox’s shares are down 39% since peaking in June.
“It’s very fundamentally difficult to transition to focusing on enterprise,” Eberle told Business Insider. “There’s security reasons why that’s not possible.”
Here’s what Dropbox reported:
- Q3 Revenue: $360.3 million, which was up 26 percent from the same period last year. Analysts were expecting $352.57 million.
- Q3 earnings per share (adjusted): 11 cents. Wall Street was looking for 6 cents a share.
- Q4 revenue (forecast): $367 million to $370 million. Analysts had predicted $363.7 million.
Dropbox exceeded the Street’s revenue expectations thanks to gains in new paying users, it said. By the end of the third quarter, it had 12.3 million paid users, up from 10.4 million a year earlier.
The company was also able to get more money out of each user. Its average revenue per user (ARPU) rose to $118.60 from $112.05 in the same period a year ago.
Per-user revenue is growing slower than investors hoped
Dropbox went public in March and saw its stock price surge 36 percent in its trading debut. Investors were excited about the company’s potential in the enterprise space, Eberle said. They thought its success in the area would translate into big gains in ARPU, he said. Some thought it could quickly rise as high as $125, but the company has since struggled to meet those expectations.
The company’s growth in paid users has also been slower than investors hoped, Eberle said. One other worry: the company stopped disclosing its growth in business users after the first quarter, he said.
“They really haven’t talked about it since then,” he said. “That’s an area of our concern … The enterprise side of this story has disappeared.”
Dropbox’s revenue forecast for next quarter is relatively conservative and should be achievable, Eberle said. But if it wants to start growing rapidly — and see its stock price go up accordingly — it needs to find a way to catch on among enterprise customers, he said. And that’s going to remain a challenge, he said.
Dropbox is adding features to appeal to enterprise customers
To be sure, Dropbox has been adding features that are targeted at just such an audience. This past quarter, it invested in its machine intelligence capabilities. It upgraded its search engine so users can personalize their searches and find files more efficiently. It also introduced an image search feature, allowing users to search for text within images.
In addition, the company announced a feature to help business users manage their workflows and another to help with project management. It also added integrations for Zoom and Salesforce to its software.
On Thursday, it announced a partnership with Google Cloud Identity and other companies to give Dropbox Business customers more advanced security features.This post was originally published here