3 Things Dropbox Management Wants You to Know

With just one quarter as a publicly traded company under its belt, investors are still getting to know this software-as-a-service company.

Daniel Sparks
Daniel Sparks
Jun 4, 2018 at 6:45PM
Technology and Telecom

A quick look at Dropbox's (NASDAQ:DBX) first reported quarter as a publicly traded company shows a strong company with significant momentum. The cloud storage company's first-quarter revenue jumped 28% year over year, helped by a 24% year-over-year increase in paid users and 3.2% higher revenue per user. Further, another key driver for Dropbox's business during the period was increased adoption of its premium plans, management said in the company's first-quarter earnings release.

But earnings releases can oftentimes be limited in the visibility they provide investors. Fortunately, publicly traded companies also host conference calls alongside their earnings releases, providing investors further insight. Here are three key takeaways from Dropbox's latest earnings call (via an S&P Global Market Intelligence transcript).

A chalkboard sketch showing three laptops connected to a cloud.

Image source: Getty Images.

How Dropbox views its business model

Living up to a price-to-sales ratio of 10 is going to require some exemplary execution and sustained levels of high growth rates for years. But Dropbox CEO Drew Houston believes the company's powerful business model positions the storage company for significant growth over the long haul.

Our consumer roots have helped us pioneer a unique business model that combines the virality and scale of a consumer Internet business with the predictability and cash generation of a SaaS business. As a result, we were the fastest SaaS company to a $1 billion revenue run rate and we believe we have a long runway for growth. -- Houston

Here's what management expects in 2018

Management provided its outlook for 2018 during its first-quarter earnings call. Here's what Dropbox CFO Ajay Vashee said: 

For the full year 2018, we expect revenue to be in the range of $1.343 billion to $1.355 billion, non- GAAP operating margin to be in the range of 9% to 10% and free cash flow to be in the range of $340 million to $350 million. This figure includes a onetime spend related to the build-out of our new corporate headquarters.

For some context, revenue between $1.343 billion and $1.355 billion in fiscal year 2018 represents growth between 21% and 22%, down considerably from Dropbox's 31% year-over-year revenue growth in 2017 and its 28% year-over-year revenue growth in the company's first quarter of 2018. But this growth is slightly higher than the approximately 20% year-over-year revenue growth its cloud storage peer Box (NYSE:BOX) is expecting in its current fiscal year.

Further, Dropbox's guidance for a non-GAAP operating margin between 9% and 10% translates to a significant improvement compared to DropBox's non-GAAP operating margin of 5% in fiscal year 2017. 

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Dropbox is attracting customers in regulated industries

An area Dropbox competitor Box considers itself a leader is in regulated industries. Indeed, in Box's most recent earnings release, CEO Aaron Levie specifically called out the company's feats in this area, saying Box "delivered product innovation and security for some of the largest and most regulated enterprises in the world." Levi went on to mention customers in the auto industry, healthcare, and defense. 

But Dropbox says it's seeing plenty of progress in regulated industries as well, even without making a concerted effort to attract these customers.

"Now that said, [in] the regulated industries ..., we see plenty of doctors, people in financial institutions that are choosing to use Dropbox because the tools that they're being provided just simply don't work for what they're trying to do," explained Dropbox COO Dennis Woodside.

Woodside then listed other examples of more regulated industries using Dropbox, including research institutions and insurance.

Asked whether Dropbox would specifically target these more regulated industries, Woodside said, "[W]e don't purposely set out to go after those industries. But where we see signal, where we have usage or we have paid usage, we certainly will have a sales rep call. And most of that usage actually is just coming to us through our self-serve engine."

Drobpox's full first-quarter earnings call is available for download on the company's investor relations website.