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Why Dropbox Stock Skyrocketed Today

By Evan Niu, CFA - Feb 21, 2020 at 1:35PM

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The cloud storage company reported strong fourth-quarter results and is beginning to focus more on profitability.

What happened

Shares of Dropbox (DBX 1.15%) have skyrocketed today, up by 21% as of 12:45 p.m. EST, after the company reported fourth-quarter earnings. The results beat expectations and the cloud storage pioneer announced a share repurchase plan.

So what

Revenue in the fourth quarter rose 19% to $446 million, topping the $443.4 million in sales that Wall Street was expecting. Adjusted net income came in at $0.16 per share, ahead of the $0.14 per share in adjusted profits that analysts were modeling for. Dropbox ended the year with annual recurring revenue of $1.8 billion. Paying users grew to 14.3 million, with average revenue per paying user of $125.

Dropbox interface

Image source: Dropbox.

"Our strong Q4 marked the end of an exciting year for Dropbox as we launched our vision for the smart workspace," CEO Drew Houston said in a statement. "We closed the year with more than $1.6 billion in revenue, over 450,000 Dropbox business teams, and millions of people using our new foreground app that keeps Dropbox at the center of our users' workflows."

Now what

The tech company's board of directors has authorized a new $600 million share repurchase program. Investors were also excited that Dropbox is starting to shift its attention from growth toward profitability. On the conference call with analysts, management issued guidance that calls for revenue of $452 million to $454 million, which is comfortably above the $448 million in sales that the market was expecting.

CFO Ajay Vashee said the company is now focusing on delivering shareholder value and is raising its long-term operating margin target to a range of 28% to 30%, significantly higher than the previous target range of 20% to 22%. Dropbox expects to hit that goal by 2024. "To get there, we'll drive more efficiency and higher levels of productivity across each of our operating expense categories," Vashee said.

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