=Dropbox (DBX) reported earnings on Thur 21 Feb 2019 (a/h)

Dropbox beats by $0.02, beats on revs;

• Reports Q4 (Dec) earnings of $0.10 per share, excluding non-recurring items, $0.02 better than the S&P Capital IQ Consensus of $0.08; revenues rose 23.0% year/year to $375.9 mln vs the $370.0 mln S&P Capital IQ Consensus and vs prior guidance of $367-370 mln.
  • Non-GAAP operating margin improved to 11.0% vs prior guidance of 9-10%. This compares to 3.3% in the prior year period.
• Note: DBX typically guides for revenue and non-GAAP operating margin on the call for the next quarter and full year.

Dropbox: Earnings Preview

Dropbox (DBX), which operates a cloud-based document sharing platform, is set to report Q4 results today after the close (last quarter they released at 16:03 ET, or three minutes after the close) with a conference call to follow at 5pm ET. DBX made its IPO debut in March 2018, so this is just its fourth earnings report as a public company.

• The CapitalIQ consensus estimate for Q4 non-GAAP EPS is $0.08. The revenue consensus estimate is $370 mln. Note: DBX typically guides for revenue and non-GAAP operating margin on the call for the next quarter and full year. On the last call, DBX guided for Q4 revenue of $367-370 mln and non-GAAP operating margin of 9-10%.
• So how does DBX make money? It uses a freemium model, meaning they offer free products with the goal of turning those people into paying customers with more advanced product offerings. The company has also been focused on driving higher adoption of its premium individual subscription plan. While it's tough to be profitable when you're giving stuff away for free, the good thing is that all these free users create a pool of potential paying customers. It's early, but DBX seems to be converting these free users at a good enough of pace. And DBX has increasingly been targeting business customers, broadening its focus beyond consumers. A key topic will be DBX's success in this area.
• As we said, as a recent IPO, there is not a lot of history in terms of how well it performs relative to consensus estimates. However, in its first three quarters as a public company, DBX reported EPS upside of $0.03 in Q1 and $0.05 in both Q2 and Q3, with nice revenue upside in all quarters.
• DBX has talked about how one of the most important ways it's improving its platform is through machine intelligence, which DBX calls DBXi. As content gets created on an increasing variety of applications (email, texts, documents, spreadsheets etc.), it's getting more difficult to find things. DBX has introduced two new machine intelligence initiatives to help solve these problems:
• First, DBX upgraded its search engine with an improved architecture called Nautilus. It delivers a more personalized search experience by surfacing the most relevant results. Second, DBX has made strides in making images searchable. Most tools cannot find text and images, but customers use images a lot. DBX has been scanning these docs to make them searchable. Any further discussion on these issues will be of interest to investors.
• Finally, the stock price has been mostly languishing since the IPO, although it has been trending higher since mid-December along with the overall market. The main concern with DBX is how well they are going to be able to covert free customers to paying customers. Once investors are confident in DBX's ability to do that, the stock could get on a nice uptrend. (PVIEW)