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Growth in Paying Users to Drive Dropbox's (DBX) Q1 Earnings

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Dropbox DBX is slated to release first-quarter 2021 results on May 6.

For the first quarter, the company expects revenues in the range of $504 million to $506 million. The Zacks Consensus Estimate for revenues is pegged at $505.01 million, which indicates growth of almost 11% from the year-ago quarter’s reported figure.

Moreover, the consensus mark for first-quarter earnings has remained unchanged at 30 cents per share in the past 30 days. This suggests a surge of 76.5% from the prior-year quarter’s levels.

Notably, the company beat estimates in each of the trailing four quarters, the average surprise being 27.36%.

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

Factors Setting the Tone for Q1 Earnings

Dropbox’s HelloSign is expected to have witnessed robust uptake in the first quarter as businesses continue with work-from-home set up. HelloSign now boasts of 21 additional languages and management expects the product to gain a solid footing in international markets, courtesy of the extensive awareness campaign.

Notably, in the fourth quarter of 2020, HelloSign witnessed a 70% increase in end user signature requests. HelloSign is an e-signature vendor that was acquired by Dropbox for $230 million in 2019.

During the quarter under review, Dropbox concluded buyout of DocSend in all cash deal worth $165 million. The company is looking to expand its digital solutions’ portfolio to assist enterprises manage important business-related documents amid remote work trend with the latest buyout.

We must note that as of Dec 31, 2020, Dropbox had cash and cash equivalents (and short-term investments) balance of $1.121 billion, and in the fourth quarter of 2020, net cash provided by operating activities amounted to $170.7 million. Management anticipates the acquisition to have an immaterial impact on 2021 operating results. Strength in cash balance and free cash flow generating ability hold promise for the company’s growth prospects.

Further, ongoing momentum in remote work wave due to the ongoing pandemic is driving demand for cloud storage, which is likely to have led to incremental adoption of the Dropbox platform in the first quarter.

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

Dropbox, currently carrying a Zacks Rank #3 (Hold), is likely to have witnessed gains from uptick in its new Family Plan, that offers support for up to six family members under one plan. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Moreover, Dropbox’s latest two add-ons — Data Migration and Creative Tools — aimed at helping users, especially media professionals, with their work are likely to have bolstered engagement.

Markedly, Creative Tools will simplify working with large media files for users while Data Migration add on will allow users to transfer files and permission to Dropbox Business from any local and other cloud storage locations.

The adoption of the latest offerings is expected to have positively impacted Dropbox’s top line in the first quarter.

Likewise, strong focus on product innovation and introduction of new features like Dropbox Passwords, Dropbox Vault, Dropbox Backup and Dropbox Spaces is anticipated to have contributed to growth in paying users. This, in turn, is expected to get reflected in the company’s to-be-reported quarter’s performance.

In fourth-quarter 2020, paying users totaled 15.48 million, up 8.2% year over year. Notably, the Zacks Consensus Estimate for first quarter paying users currently is pegged at 15.65 million, indicating year-over-year growth of 7.2%.

Additionally, integration with leading applications like Zoom Video ZM and Atlassian TEAM may have led to increasing utilization of the platform. These factors are likely to positively impact growth of average revenue per paying user.

The company has also teamed up with Adobe ADBE to roll out Dropbox Transfer for Adobe Creative Cloud.

In fourth-quarter 2020, average revenue per paying user was $130.17, up 4% over prior-year quarter. The consensus mark for the same in the first quarter is currently pegged at $131, which suggests growth of 3.7% on a year-over-year basis.

Besides, inclination toward web-based learning has resulted in increasing usage of Dropbox Paper among higher-education institutions and universities, which is likely to have acted as a tailwind.

However, higher investments toward product development amid stiff competition from services like Google Drive, Microsoft One Drive, and Citrix ShareFile might have limited margin expansion in the first quarter.

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