Cloud storage company Dropbox (NASDAQ: DBX) beat Wall Street’s revenue expectations in Q3 CY2025, but sales were flat year on year at $634.4 million. Its non-GAAP profit of $0.74 per share was 14.1% above analysts’ consensus estimates.

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Company Overview

Originally named after the founders' tendency to "drop" files into a shared folder, Dropbox (NASDAQ: DBX) provides a content collaboration platform that helps individuals and teams store, organize, share, and work on files from anywhere.

Revenue Growth

A company’s long-term sales performance is one signal of its overall quality. Any business can have short-term success, but a top-tier one grows for years. Regrettably, Dropbox’s sales grew at a weak 6.4% compounded annual growth rate over the last five years. This fell short of our benchmark for the software sector and is a tough starting point for our analysis.

We at StockStory place the most emphasis on long-term growth, but within software, a half-decade historical view may miss recent innovations or disruptive industry trends. Dropbox’s recent performance shows its demand has slowed as its annualized revenue growth of 1.3% over the last two years was below its five-year trend.

This quarter, Dropbox’s $634.4 million of revenue was flat year on year but beat Wall Street’s estimates by 1.7%.

Looking ahead, sell-side analysts expect revenue to decline by 1.9% over the next 12 months, a deceleration versus the last two years. This projection doesn't excite us and suggests its products and services will see some demand headwinds.

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Annual Recurring Revenue

While reported revenue for a software company can include low-margin items like implementation fees, annual recurring revenue (ARR) is a sum of the next 12 months of contracted revenue purely from software subscriptions, or the high-margin, predictable revenue streams that make SaaS businesses so valuable.

Over the last year, Dropbox failed to grow its ARR, which came in at $2.54 billion in the latest quarter. This performance mirrored its total sales, showing the company faced challenges in winning long-term deals and renewals. It also suggests there may be increasing competition or market saturation.

Customer Base

Dropbox reported 18.07 million customers at the end of the quarter, a sequential decrease of 60,000. That’s worse than what we’ve observed previously, suggesting the company’s sales momentum is slowing. However, we note that Dropbox actually increased its annualized recurring revenue (ARR) during the quarter, indicating that its new customers may have signed huge contracts, existing customers stepped up their spending, or some combination of both.

Key Takeaways from Dropbox’s Q3 Results

It was good to see Dropbox narrowly top analysts’ billings expectations this quarter. We were also happy its revenue outperformed Wall Street’s estimates. On the other hand, its customer growth slowed. Overall, this quarter was still decent. The stock traded up 4.5% to $30 immediately after reporting.

Is Dropbox an attractive investment opportunity right now? If you’re making that decision, you should consider the bigger picture of valuation, business qualities, as well as the latest earnings. We cover that in our actionable full research report which you can read here, it’s free for active Edge members.