By Daniel Shvartsman
Dropbox (NASDAQ:DBX) shares dropped nearly 9% in early trading after a Q4 report that beat expectations but also raised alarms.
The file storage software company reported non-GAAP earnings of $.40/share vs. last year's $.41/share, and revenue of $598.8 million, 5.9% growth from last year. The per share earnings was boosted by Dropbox's share buyback program, while revenue faced currency headwinds - management stated growth would have been 9.2% on a constant currency basis.
On the earnings conference call, Dropbox CFO Tim Regan issued guidance of $600-603M in revenue in Q1, and full-year revenue of $2.475-$2.49 billion. Both numbers come in ahead of current analyst expectations, but Dropbox benefited both in Q4 and in its guidance from the recent acquisition of FormSwift.
Dropbox also forecast $825M-$855M in free cash flow for 2023, though they at least raised questions about whether they could hit their long-term guidance of $1B in free cash flow for 2024, citing a combined headwind from FX and R&D legislation of over $75M since they issued that guidance.
Goldman Sachs analysts reiterated a sell rating after the report, acknowledging that FormSwift will counter a recent headwind in average revenue per user (ARPU), but saying, "Management anticipates FormSwift (acquired 12/15/2022) to contribute ~2.5 points of growth in FY23, implying organic growth of ~4.5% YoY (below Consensus of 5.5%). Additionally, investors may be concerned due to the margin pressures associated with M&A (~50bps headwind to Operating Margin in FY23), especially amidst an environment favoring enhanced profitability."
They also called out that, "DBX experienced elevated churn relative to Q3, in-part due to recent mobile operating system changes enabling reduced friction around subscription cancellation – a trend we believe may continue as customers adopt heightened cost consciousness."
Goldman's price target for Dropbox is $22.
RBC Capital responded more positively, saying, "Dropbox reported decent Q4 results. Macro impacts are beginning to show up with churn and greater price sensitivity, but management provided appropriately conservative guidance for 2023 (in our view) and we see upside to margins. In addition, December's acquisition of FormSwift increasingly looks positive to us." RBC raised their Dropbox price target from $27 to $30.
Credit Suisse also took the bearish view, reiterating their Underperform rating and a price target of $20, saying, "While FY2023 revenue guidance exceeded a low bar, we believe commentary suggests challenges across the portfolio are more palpable. Profitability guidance includes numerous expected headwinds and the path to $1 billion in FCF has become more challenging."
Dropbox traded at $21.85 at 10 am ET Friday, right in the middle of its relatively narrow 52-week range of $19-$25.