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Why Dropbox Stock Fell 8.4% Friday

By Daniel Sparks – Updated Apr 15, 2019 at 4:03PM

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Here's where Dropbox's fourth-quarter update disappointed.

What happened

Shares of cloud storage and online collaboration company Dropbox (DBX 2.95%) fell as much as 10% Friday. But shares finished the trading day down 8.4%.

The stock's decline was prompted by the company's fourth-quarter update. Though revenue and adjusted earnings per share in the period beat analysts' consensus forecasts for the two metrics, the company's guidance for its operating margin was lower than anticipated.

Three laptops connected to a cloud

Image source: Getty Images.

So what

Dropbox reported fourth-quarter revenue of $375.9 million, up 23% year over year, continuing a trend of decelerating growth. Meanwhile, the company's non-GAAP earnings per share rose from $0.03 in the year-ago quarter to $0.10. On average, analysts expected revenue and non-GAAP earnings per share of $370 million and $0.08, respectively.

Free cash flow for the quarter was $88.3 million, up from $57.8 million in the year-ago quarter.

"Our healthy top line growth and free cash flow generation reflect our strong business model," said Dropbox CEO Drew Houston in the company's fourth-quarter update.

But the company disappointed when it came to its outlook for its operating margin. Dropbox said it expected its non-GAAP operating margin for its first quarter to be between 7% and 8%. Analysts, on average, were expecting a first-quarter non-GAAP operating margin of 12.1%. Dropbox CFO Ajay Vashee noted in the company's fourth-quarter earnings call that the lower operating margin "incorporates integration and synergy investments related to HelloSign," an e-signature and workflow platform the company recently acquired.

Check out the latest Dropbox earnings call transcript.

Now what

For the company's first quarter, Dropbox expects revenue to be between $379 and $389 million, up from $316 million in the first quarter of 2018. For the full year, the company expects revenue in the range of $1.627 billion and $1.642 billion, up from revenue of $1.392 billion in 2018.

Looking ahead, management is excited about its recent acquisition of HelloSign. "And in 2019, we're already off to a great start with our acquisition of HelloSign a few weeks ago," said Dropbox CEO Drew Houston in the company's earnings call, "HelloSign has built a thriving business focused on e-signature and document workflow with over 80,000 customers."

Daniel Sparks has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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