Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 67% of retail investor accounts lose money when spread betting and/or trading CFDs with this provider. You should consider whether you understand how spread bets, CFDs, OTC options or any of our other products work and whether you can afford to take the high risk of losing your money.

67% of retail investor accounts lose money when spread betting and/or trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money.

  • Earnings

Is Dropbox a stock to watch? Q3 earnings sees shares pop

Dropbox [DBX], the American file-hosting service headquartered in San Francisco with a $9.5bn market cap, has released its earnings for the third-quarter.
 
 

Q3 earnings results

The company’s stock surged 8.5% on Thursday following its better-than-expected third-quarter earnings of 11 cents per share, compared with the 6 cents per share predicted by Refinitiv. Dropbox made a total revenue of $360.3m, rather than $352.7m as predicted by analysts; revenue was up 26% year-on-year.
 
The company had been expecting earnings between $350m and $353m for the quarter, with a non-GAAP operating margin of 7.5% to 8.5%. Revenue was up 27% year-on-year to $339.2m in Q2, with a GAAP gross margin of 73.6%, up on the 65.4% achieved in the same period in 2017. 

 

Revenue percentage change, Q3 YoY+26%
Non-GAAP diluted net income per share (EPS) percentage change, Q3 YoY+57%
Market cap$9.9bn

Dropbox stock vitals, Yahoo finance, as at 13 November 2018

 

However, the stock is currently sitting around the $25 to $26 mark, far off its June high of $39.60.
 
The company’s IPO came in above expectations in March 2017 at $21 per share, raising $756m in the process – the largest tech IPO since Snap a year before it.
 
Dropbox employs some 2,000 people, and expects to have 540 million users by the end of 2018. In Q2, despite beating expectations, the stock fell as tech more generally struggled and COO Dennis Woodside left the company. Three months later, the stock is down a further 30%.

Dropbox share price performance, NASDAQ interactive chart, as at 13 November

 

Partnerships and innovation key to growth
 
The company’s improved numbers in Q3 are in part due to its various partnerships with the likes of Moovly Media Inc [MVY] and Zoom Video Communications, which helps users access and synchronise files across multiple devices.
 
Dropbox’s association with Hewlett Packard Enterprise [HPE], Ingram Micro and Adobe Inc [ADBE] seems to have also led to greater exposure in existing and new markets.
 
Meanwhile an onus on product innovation, particularly cloud-based and AI technologies, has played a part in increased growth. Dropbox Paper, a collaborative document-editing service, rolled out a number of new features, including more support for third-party integration. These improvements are aimed at strengthening its infrastructure and positively impacting growth.

The growth in paid users and per-user revenue also abetted those reported higher earnings. Dropbox, which has more than 500 million registered users, had 12.3 million paying users in the third quarter, gaining 2 million, an increase beyond the 12.2 million forecasted.
 
According to Datanyze, Dropbox enjoys 29.5% market share of the file sharing space. Close competitor Google [GOOGL] has 30.85% with Google Drive, Box has 19.76% and Microsoft Drive [MSFT] has 8.24%.
 

29.5%

Dropbox market share in the file sharing space

Guidance raised - a worthy investment?
 
A key threat to Dropbox’s continued growth is that anyone who uses a combination of Google’s search engine, Chrome Browser and Google Docs is likely to use Google Drive too. Dropbox fixes one issue, while Google is able to provide a seamless solution to many.
 
Meanwhile, Dropbox’s competitors have incited a race to zero – a price-slashing exercise Dropbox seems less equipped to take part in. Therefore, it has focused on the business world, offering premium features through subscription plans, to positive effect.
 
Dropbox raised its revenue guidance for the full year on Thursday. It's now expecting $1.383bn to $1.386bn in revenue for 2018, up from the previous guidance of $1.366bn to $1.372bn. Chief Financial Officer Ajay Vashee said Dropbox now expects an operating margin of 11.5% to 12% for the full year, up from 9.5% to 10.5%.
 
“We believe high expectations/multiples are warranted for Dropbox,” Mark Mahaney, analyst at RBC Capital Markets, wrote in a report this week. Mahaney highlights Dropbox as a worthwhile investment.

The global cloud storage market is expected to reach $100.8bn by the year 2023, rising at a growth rate of 22% CAGR. Since late October Dropbox stock has rallied, now around the $25 mark since lows beneath $22 two weeks ago. 

With apparent momentum in the market, growth expected and earnings that could continue to beat expectations, Dropbox remains a stock worth watching.

Disclaimer Past performance is not a reliable indicator of future results.

CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.

The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.

CMC Markets does not endorse or offer opinion on the trading strategies used by the author. Their trading strategies do not guarantee any return and CMC Markets shall not be held responsible for any loss that you may incur, either directly or indirectly, arising from any investment based on any information contained herein.

*Tax treatment depends on individual circumstances and can change or may differ in a jurisdiction other than the UK.

Continue reading for FREE

Latest articles