Dropbox (DBX) Earnings and Revenues Top Estimates in Q1

Dropbox DBX reported first-quarter 2021 non-GAAP earnings of 35 cents per share, which beat the Zacks Consensus Estimate by 16.7%. The bottom line surged 106% from the figure reported in the year-ago quarter.

Revenues of $511.6 million beat the Zacks Consensus Estimate by 1.3%. The top line increased 12% on a year-over-year basis. On a constant-currency basis, revenues increased 11% year over year.

Following the announcement, shares of Dropbox were up 0.7% on May 7. In the past year, the stock has returned 7.6% compared with the industry’s rally of 57.3%.

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Quarter in Details

Average recurring revenues or ARR was $2.112 billion, up 13% (up 12% on constant currency) on a year-over-year basis. Increases in paying users and adoption of premium plans drove ARR growth.

Paying users came in at 15.83 million, up 8.5% on a year-over-year basis.

Average revenues per user (ARPU) stood at $132.55 in the first quarter of 2021, up 4.9% year over year.

Notably, HelloSign witnessed strong traction in the quarter under review. HelloSign now boasts 21 additional languages and management expects the product to gain a solid footing in international markets, courtesy of the extensive awareness campaign. HelloSign is an e-signature vendor that was acquired by Dropbox for $230 million in 2019.

In first-quarter 2021, the company completed the acquisition of DocSend for $165 million. With the buyout, Dropbox is looking to expand its digital solutions’ portfolio to assist enterprises manage important business-related documents amid ongoing remote work trend.

In the quarter under review, the company rolled out freemium version of passwords for its basic users.

Operating results

Dropbox’s non-GAAP gross margin in the quarter was up 190 basis points (bps) year over year to 80.2% in the first quarter of 2021.

Meanwhile, total non-GAAP operating expenses amounted to $261.7 million, down 7.6% on a year-over-year basis.

The company reported non-GAAP operating margin of 29.1% compared with 16.1% reported in the prior-year quarter.

Balance Sheet & Cash Flow

As of Mar 31, 2021, Dropbox’s cash and cash equivalents (and short-term investments) came in at $1.916 billion compared with $1.121 billion as of Dec 31, 2020.

In the first quarter, net cash provided by operating activities came in at $116 million compared with $170.7 million reported in the prior quarter.

Free cash flow was $109 million in the first quarter compared with $158.4 million reported in the prior quarter.

In the first quarter of 2021, Dropbox completed its existing $600-million share buyback plan. Additionally, the company had announced a $1-billion share repurchase authorization in the fourth quarter of 2020. At the end of first quarter, the company has $970 million shares left under the repurchase program.

Guidance

Dropbox expects second-quarter 2021 revenues in the range of $522-$525 million. The Zacks Consensus Estimate is pegged at $520 million.

Further, the non-GAAP operating margin for the second quarter is projected between 27.5% and 28%.

For 2021, revenues are expected in the range of $2.118-$2.130 billion compared with earlier guidance of $2.095-$2.115 billion. The Zacks Consensus Estimate is pegged at $2.1 billion.

Non-GAAP operating margin is expected to be 27-28% for the year.

For 2021, free cash flow is now estimated in the range of $670-$690 million compared with previous guidance of $645-$655 million.

Zacks Rank & Other Stock to Consider

Dropbox currently carries a Zacks Rank #2 (Buy).

Some other top-ranked stocks in the broader technology sector are Agilent Technologies A, Pure Storage PSTG and NVIDIA NVDA. All the stocks carry a Zacks Rank #2. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

Agilent scheduled to report quarterly results on May 25, while NVIDIA and Pure Storage are slated to announce results on May 26.

Long-term earnings growth rate of Agilent, Pure Storage and NVIDIA is pegged at 9%, 52.2% and 15.1%, respectively.

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