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Factors Likely to Impact Dropbox's (DBX) Q2 Earnings

Zacks Equity Research

Dropbox Inc. DBX is slated to release second-quarter fiscal 2019 results on Aug 8.

Notably, the company beat the Zacks Consensus Estimate in the trailing four quarters, with an average positive surprise of 64.6%.

Past-Quarter Performance

In the last reported quarter, the company reported non-GAAP earnings of 10 cents surpassing the Zacks Consensus Estimate of 6 cents per share. Revenues of $386 million outpaced the Zacks Consensus Estimate of $382 million and improved 22.2% on a year-over-year basis, primarily on the back of higher user growth and ARPU expansion.

What to Expect on Q2

Dropbox expects revenues for second quarter to be in the range of $399 million to $401 million.

The Zacks Consensus Estimate for second-quarter earnings is pegged at 8 cents, unchanged for the last 30 days. This indicates a decline of about 27.3% from year-ago earnings. For quarterly sales, the consensus mark stands at $400.9 million, suggesting an improvement from 18.2% from the year-ago reported figure.

Dropbox’s stock has returned 12.7% on a year-to-date basis, significantly outperforming the industry's growth of 3.8%.

Let’s see how things are shaping up prior to this announcement.

Factors at Play

Dropbox’s continuous efforts to strengthen cloud-based and AI technologies are likely to drive the top line in the to-be-reported quarter. The company’s focus on helping users access and synchronize files, and utilize applications through multiple devices is enhancing user experience which in turn is likely to aid the second-quarter results.

The company recently launched a new and unique integrated workspace. The latest Dropbox get cloud-based content into the Dropbox file system to provide one central access point to the workspace for all content.

The company has also entered into a strategic alliance with Atlassian. The partnership is aimed at developing new integrations across Dropbox and Atlassian’s platforms in order to offer more enhanced environment for teams to organize, coordinate and run projects.

Moreover, the company’s integration of Dropbox Extensions and various partnership programs is making it easier for people and organizations to work with files on the go. Further, strong focus on product innovation and introducing new products is anticipated to provide the company a competitive edge against its peers, which in turn will impact the top line in the to-be-reported quarter.

Recently, Dropbox completed the acquisition of HelloSign. Together, Dropbox and HelloSign will provide enhanced experience to Dropbox users, and simplify workflows for millions of customers. Dropbox has also announced various partnership programs of late. The company recently entered into a partnership with Microsoft MSFT, Google, Salesforce, Adobe, and Zoom. The alliance is making it easier for people and organizations to work with files on the go. Dropbox’s acquisition synergies and strong expansion will favor second-quarter results.

These aforesaid factors are helping Dropbox to win new customers. However, increasing investments on product enhancements and other growth strategies are likely to limit margin expansion at least in the near term.

What the Zacks Model Unveils

According to the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has a good chance of beating estimates if it also has a positive Earnings ESP. The Sell-rated stocks (Zacks Rank #4 or 5) are best avoided.

Dropboxhas a Zacks Rank #2 and an Earnings ESP of 0.00%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Stocks to Consider

Here are some stocks which you may consider as our model shows that these have the right combination of elements to post an earnings beat in its upcoming release:

Lockheed Martin Corporation LMT has an Earnings ESP of +0.90% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

AmerisourceBergen Corporation ABC has an Earnings ESP of +1.52% and a Zacks Rank #2.

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Lockheed Martin Corporation (LMT) : Free Stock Analysis Report
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