Cloud file-sharing company Dropbox late Thursday reported better-than-expected third quarter earnings and highlighted its artificial intelligence plans. But DBX stock traded lower Friday, after revenue guidance missed estimates.
For the quarter ending Sept. 30, Dropbox earned an adjusted 56 cents per share on revenue of $633 million. Analysts expected San Francisco-based Dropbox to report adjusted earnings 49 cents per share and sales of $628 million, according to FactSet.
Dropbox's earnings increased 30% year over year. Revenue climbed 7%
On the stock market today, DBX stock fell 1.6% to 26.00.
Immediately following the report Thursday, Dropbox stock was up just under 2%. The company gave its outlook during its earnings call later that night.
DBX Stock: Outlook Short Of Views
For the current fourth quarter, Dropbox expects revenue of $630.5 million at the midpoint of its range. That was short of expectations of $632 million, according to FactSet.
"We continue to see elevated price sensitivity and down-sell pressure from our teams customers, largely those that have had layoffs themselves," Chief Financial Officer Tim Regan said on the company's earnings call. "We've seen this particularly impact customers in the technology and construction verticals."
Analysts with William Blair maintained a market perform, or neutral, rating for DBX stock following the report.
"We continue to see a roughly balanced risk/reward equation for Dropbox as the company continues to search for levers of growth among its large customer base," wrote William Blair analyst Jason Ader in a client note.
Further, the note said Dropbox trades at an enterprise value 3.5 times its estimated 2024 earnings, compared to a median multiple of 5.5 times for peers in the software-as-a-service market.
"We believe these discounts are justified given the company's weak top-line growth and margin expansion prospects going forward," Ader wrote.
DBX Stock: AI Push
To boost growth, Dropbox is turning to AI. The company earlier this year launched a beta version of Dropbox Dash. The "AI-powered universal search tool" allows users to search for files across all apps.
"We continue to see an opportunity to leverage AI and machine learning to improve the experience of distributed work that will provide long term value for our customers and shareholders," said Dropbox Chief Executive Drew Houston in a statement with the earnings release.
But as part of that AI pivot, Dropbox laid off 500 employees, or 16% of its workforce, in April. Houston said at the time that the next stage for the company "requires a different mix of skill sets."
The company is positioning itself for what it described as the search and knowledge discovery market for files. Citing research firm IDC, Dropbox said that market is worth $7 billion currently and will triple over the next four years.
And that could be helped by the explosive data demands of generative artificial intelligence products.
"We believe we're well positioned to take part in this secular wave with Dropbox Dash," Regan said on the earnings call.
The company plans to launch the product in full early next year, Regan said. In the meantime, the company does not expect meaningful revenue contributions from the product until later in 2024.
DBX: Strength For Individual Sales
Meanwhile, Dropbox said strength in sales of individual plans helped offset headwinds for its corporate-focused teams and document workflow business lines.
Dropbox's number of paying users reached 18.17 million, ahead of estimates of 18.12 million. The company is also collecting more per paid user, it said. Average revenue per paying user climbed about 3% year over year to $138.71.
DBX stock has gained 17% prior to its earnings Thursday, compared to a 10% gain for the S&P 500. Further, Dropbox is on the IBD Tech Leaders list.
