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Dropbox (DBX) to Report Q3 Earnings: What's in the Cards?

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Zacks Equity Research
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Dropbox DBX is slated to report third-quarter 2020 results on Nov 5.

For the third quarter, the company expects revenues between $481 million and $484 million. Solid uptick in Dropbox’s new Desktop App amid coronavirus crisis-induced evolving workspace demand for seamless enterprise communication tools is expected to get reflected in the third-quarter top line.

The Zacks Consensus Estimate for revenues is pegged at $482.6 million, which indicates growth of 12.7% from the year-ago reported figure.

Moreover, the consensus mark for second-quarter earnings has remained unchanged at 19 cents per share over the past 30 days. This suggests an improvement of 46.2% from the prior-year quarter.

Notably, the company beat estimates in each of the trailing four quarters, the average surprise being 20.83%.

Factors Likely to Have Influenced Q3 Performance

Dropbox has been striving to enhance its platform to enable users to access, store, synchronize and share files, photos, videos, songs and spreadsheets. Coronavirus crisis induced work-from-home wave has triggered demand for cloud storage, which might have led to incremental adoption of the Dropbox platform in the third quarter.

Dropbox, Inc. Price and EPS Surprise

Dropbox, Inc. Price and EPS Surprise
Dropbox, Inc. Price and EPS Surprise

Dropbox, Inc. price-eps-surprise | Dropbox, Inc. Quote

The company has been witnessing growth in user base of Plus subscription plan for individuals, courtesy of strength in Smart Sync, Dropbox Rewind, and Dropbox Transfer features.

Increasing popularity of the Dropbox platform is expected to instill confidence in the stock. Dropbox carries a Zacks Rank #3 (Hold), at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Markedly, inclination toward web-based learning has led to higher utilization of Dropbox Paper among higher-education institutions and universities. Professors are finding it convenient to use Dropbox Paper to enhance educational content by making it more engaging, collaborative and accessible for students.

In medical field, robust uptake of HelloWorks — a fully customizable document workflow solution — in processing patient intake forms for instance, is likely to have benefited third-quarter performance.

Moreover, strong strategic focus on product innovation and introduction of new features like Dropbox Passwords, Dropbox Spaces, and integration of HelloSign functionality might have contributed to growth in paying users. This, in turn, is expected to get reflected in the third-quarter results.

In second-quarter 2020, paying users totaled 15 million, up 10.3% year over year. Notably, the Zacks Consensus Estimate for third-quarter paying users currently stands at 15.13 million, indicating year-over-year growth of 8.1%.

Also, the company’s efforts to enable users utilize applications through multiple devices has been enhancing user experience. Further, integration with leading applications like Zoom Video ZM, Slack WORK and Atlassian TEAM may have led to increasing utilization of the platform. These factors are likely to get reflected in growth of average revenue per paying user.

In second-quarter 2020, average revenue per paying user was $126.88, compared with $120.48 in prior-year quarter. The consensus mark for the same in the third quarter currently stands at $127, compared with $123.15 reported in year-ago quarter.

Nevertheless, increasing investments in product enhancements amid stiff competition from services like Microsoft One Drive, Google Drive and Citrix ShareFile may have weighed on margin expansion in the third quarter.

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