Dropbox Needs Stronger SMB And User Growth Signals, Analysts Say

Dropbox Inc DBX stock is trading higher after the company reported better-than-expected second-quarter financial results Thursday.

The results came during an exciting earnings season. Here are key analyst takeaways.

Goldman Sachs Kash Rangan reiterated a Sell rating while lowering his price target to $20 from $22.

RBC Capital Markets analyst Rishi Jaluria maintained an Outperform rating with a price target of $32.

Goldman Sachs: Dropbox gained after marginally beating the consensus in ARPU, paying users, revenue, and adjusted operating margins, Rangan noted. The company slightly raised fiscal 2024 guidance and raised operating margin guidance.

While the setup into the print provided Dropbox with some support, the analyst noted macro and idiosyncratic headwinds that left him cautious in underwriting further growth.

Rangan flagged paying user pressure, down selling after layoffs, and signs of weakness after security incidents, reflected in Dropbox's updated fiscal 2024 revenue guidance.

Persistent SMB choppiness, which Dropbox is particularly inclined towards, left the analyst doubting.

While second-quarter paying users and ARPU exceeded expectations, the guidance for flat user growth suggests that the steady yield from Dropbox's GTM and platform initiatives may take time to permeate, Rangan said.

The analyst proposed to wait for improving SMB signals, user growth, ARPU upside, and greater certainty around timing and potential uplift from Dash to gain conviction in the stock.

Rangan expects third-quarter revenue of $638.3 million and EPS of $0.51.

RBC Capital Markets: Dropbox reported a decent quarter, leading shares up 5% after-hours, Jaluria noted.

Profitability was the highlight, with adjusted operating margins of 35.9% (~290 bps ahead of guidance) and up 170 bps YoY.

The analyst added that the second-quarter revenue and ARR beats were decent, while billings were slightly light.

On the call, Jaluria will seek an update on new business trends, the traction of Dash and bundling, and assumptions for second-half guidance.

Price Action: DBX stock traded higher by 2.35% at $22.28 at the last check on Friday.

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