The file-hosting service Dropbox, Inc. (Nasdaq: DBX) posted Q3 GAAP net loss that widened from last year. However, the quarterly earnings and revenue surpassed analysts’ expectations. Still, the market punished the stock, which lost $1.16 or 5.56% to close at $19.80.
San Francisco, California-based Dropbox reported third-quarter revenues of $428.20 million, up 19% from $360.30 million in a similar period last year. The revenue grew 18% in the previous quarter. Analysts polled by Refinitiv anticipated revenues of $423.50 million in the third quarter.
Net loss for the quarter widened to $17 million, or $0.04 per share, from $5.80 million, or $0.01 a share, last year. Excluding stock-based compensation, acquisition-related expenses amortization of acquired intangible assets, and other charges, the Q3 2019 non-GAAP net income was $55.90 million, or $0.13 per share, compared with $45 million, or $0.11 a share, in the prior-year period.
According to Ajay Vashee, Dropbox’s chief financial officer, the growth was led by the solid response to the company’s premium, professional, and advanced subscription plans by new paying customers and also the re-pricing of the plans mentioned above.
Commenting on the quarterly results, Dropbox Co-founder and CEO Drew Houston said, “We had a strong Q3 highlighted by 19% top-line growth and margin expansion. We’re excited about the early momentum we’ve seen with our new desktop app — millions are already using it since it was made generally available on September 25. Together with the launch of Dropbox Spaces, we’re making great progress towards building the world’s first smart workspace where people can focus on the work that matters.”
For the quarter, GAAP gross margin was 75.5%, compared with 75% in the year-ago period. The non-GAAP gross margin was 76.7%, a slight increase from 75.9% last year.
Free cash flow declined to $102.50 million in the quarter ended September 2019, from $120 million in the quarter ended September 2018.
At the end of the third quarter, the company had roughly 14 million paying subscribers, exceeding the FactSet consensus estimate of 13.89 million. Likewise, the average revenue per paying customer was $123.15, an increase from $118.60 in the comparable quarter last year, beating the $122.30 forecast of FactSet analysts.
Deferred revenue was $541.10 million at the end of Q3 2019, slightly higher than FactSet analysts’ estimate of $534 million.
During the quarter, the company launched Spaces, an upgraded version of its shared folders. Furthermore, Intercom operating chief Karen Peacock and Autodesk marketing chief Lisa Campbell joined the board.
The company intends to realize a 14% to 15% operating margin in the fourth quarter, excluding other charges. The FactSet consensus currently stands at 14.3%.
Dropbox also expects free cash flow of between $375 million and $385 million for FY 2019, slightly less than $392 million forecast by FactSet analysts. The widening of losses is expected to keep the stock bearish in the short-term.
The historical price chart indicates that the stock is trading below its 50-day moving average. Additionally, the Chaikin money flow indicator is having a negative reading. The stock is also facing resistance at 22.50. The next support is anticipated near 18. Therefore, we can expect the stock to move down in the short-term.
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