Dropbox’s (NASDAQ:DBX) Q4: Beats On Revenue But Customer Growth Slows Down

February 20, 2025 at 16:15 PM EST

DBX Cover Image

Cloud storage and e-signature company Dropbox (Nasdaq: DBX) reported Q4 CY2024 results topping the market’s revenue expectations, with sales up 1.4% year on year to $643.6 million. Its non-GAAP profit of $0.73 per share was 16.8% above analysts’ consensus estimates.

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Dropbox (DBX) Q4 CY2024 Highlights:

Revenue: $643.6 million vs analyst estimates of $639 million (1.4% year-on-year growth, 0.7% beat)
Adjusted EPS: $0.73 vs analyst estimates of $0.62 (16.8% beat)
Guidance will be given on the earnings call
Operating Margin: 13.7%, down from 42.1% in the same quarter last year
Free Cash Flow Margin: 32.7%, down from 42.3% in the previous quarter
Customers: 18.22 million, down from 18.24 million in the previous quarter
Annual Recurring Revenue: $2.57 billion at quarter end, up 2% year on year
Market Capitalization: $10.12 billion

“We delivered solid results in 2024 and made a lot of progress bringing our AI-powered product, Dash for Business, to market and restructuring our core business to be even more efficient,” said Dropbox Co-Founder and Chief Executive Officer Drew Houston.

Company Overview

Founded by the long-serving CEO Drew Houston and Arash Ferdowsi in 2007, Dropbox (NASDAQ: DBX) provides a file hosting cloud platform that helps organizations collaborate and share documents.

Document Management

The catch phrase "digital transformation" originally referred to the digitization of documents within enterprises. The growth of digital documents has spurred an explosion of collaboration within and between businesses, which in turn is driving the demand for e-signature and content management platforms.

Sales Growth

Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can have short-term success, but a top-tier one grows for years. Unfortunately, Dropbox’s 5.7% annualized revenue growth over the last three years was weak. This was below our standard for the software sector and is a tough starting point for our analysis.

This quarter, Dropbox reported modest year-on-year revenue growth of 1.4% but beat Wall Street’s estimates by 0.7%.

Looking ahead, sell-side analysts expect revenue to remain flat over the next 12 months, a deceleration versus the last three years. This projection is underwhelming and indicates its products and services will face some demand challenges.

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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.

Dropbox’s ARR came in at $2.57 billion in Q4, and over the last four quarters, its growth was underwhelming as it averaged 2.7% year-on-year increases. This performance mirrored its total sales and suggests that increasing competition is causing challenges in securing longer-term commitments. Dropbox Annual Recurring Revenue

Customer Base

Dropbox reported 18.22 million customers at the end of the quarter, a sequential decrease of 20,000. That’s worse than what we’ve observed previously, and we’ve no doubt shareholders would like to see the company accelerate its sales momentum.

Key Takeaways from Dropbox’s Q4 Results

It was good to see Dropbox narrowly top analysts’ annual recurring revenue expectations this quarter. EPS also beat by a nice amount this quarter. On the other hand, its customer growth slowed. Overall, this quarter was mixed. The stock remained flat at $31.80 immediately after reporting.

Dropbox didn’t show it’s best hand this quarter, but does that create an opportunity to buy the stock right now? The latest quarter does matter, but not nearly as much as longer-term fundamentals and valuation, when deciding if the stock is a buy. We cover that in our actionable full research report which you can read here, it’s free.

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