What to look for when Dropbox (DBX) reports Q3 earnings

Dropbox Inc. (NASDAQ: DBX) is set to report its third-quarter earnings results on Thursday after the market closes. The results will be benefited by paying user growth, average revenue per user expansion, as well as forging partnerships and making acquisitions for product enhancement.

The San Francisco, California-based firm derives its revenue from subscription fees to customers for accessing its platform. The company records contract liabilities when cash payments are received or due in advance of the performance to deferred revenue, which relates to the advance consideration received from the customer.

The company is trying its best to cash-in on the cloud and is spending more on this. This is likely to lower the cash. The company is likely to buy infrastructure equipment for supporting its user base and investing in new and existing office spaces, including its new corporate headquarters, to support its growth plans.

For the quarter, the gross margin is likely to remain relatively constant as the company continues to increase the utilization of its internal infrastructure. The operating expenses are anticipated to increase due to higher R&D and marketing efforts that will continue to drive its self-serve business model.

Analysts expect the company’s earnings to remain flat from the previous year at $0.11 per share while revenue will jump by 18% to $423.48 million for the third quarter. The company has surprised investors by beating analysts’ expectations in all of the past four quarters. The majority of the analysts recommended a “buy” rating with an average price target of $29.82.

Read: Uber Technologies Q3 earnings review

For the second quarter, Dropbox posted a wider loss due to an increase in costs and expenses. However, the top line jumped by 18% as the number of paying users increased by 14% and average revenue per user improved by 3.2%. For the third quarter, the company expects revenue in the range of $421-424 million and an adjusted operating margin in the range of 11-12%.

For fiscal 2019, the company anticipates revenue in the range of $1.648-1.654 billion and an adjusted operating margin in the range of 11-12%. Free cash flow is predicted to be in the range of $375-385 million for the full year. The forecast for capital expenditures spend is $160-170 million, inclusive of $120-130 million of capital expenditures related to the buildout of new corporate headquarters in San Francisco, CA.

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