(Reuters) - Dropbox Inc on Thursday reported a better-than-expected quarterly profit, raised its outlook for operating margin and announced a $600 million share buyback, sending its shares up 11% in trading after the bell.
The company raised its operating margin target between 28% and 30%, which it expects to achieve by 2024, up from its initial range of 20% to 22%.
"The big story is the $600 million buyback, which is a clear indication that Dropbox views their stock as undervalued and that management is bullish on the future of the company," said Rishi Jaluria, an analyst from brokerage D.A. Davidson & Co.
He added that the move was "pretty unusual" given that the company went public less than two years ago.
The company, which counts National Geographic and Spotify (NYSE:SPOT) Technology SA among its customers, said it had 14.3 million paid subscribers at the end of the fourth quarter.
Analysts had expected 14.2 million subscribers, according to research firm FactSet.
Dropbox has been trying to attract customers through tools that allow users to create and share documents across platforms, including Google (NASDAQ:GOOGL) Docs and Microsoft (NASDAQ:MSFT) Office.
The company has also benefited from its "freemium" model, where consumers can use its basic services for free but have to pay for additional services.
Excluding items, it earned 16 cents per share, above expectations of 14 cents per share.
Average revenue per user rose to $125 from $119.6 a year earlier, while analysts had estimated $124.8 for the quarter ended Dec. 31.
Revenue rose 18.6% to $446 million, edging past the average analyst estimate of $443.3 million, according to IBES data from Refinitiv.