Categories Analysis, Technology

Dropbox (DBX) paves its way to profitability through the pandemic and finds a strong footing

The company believes that the shift to a remote working model will continue, driving demand for its products going forward

Dropbox Inc. (NASDAQ: DBX) benefited from the restrictions put in place due to the coronavirus outbreak as more companies shifted their employees to a work-from-home setting. The company reported an 18% increase in revenue and a 70% jump in adjusted EPS for the first quarter of 2020.

On its quarterly conference call, Dropbox stated that over the past couple of months, it saw a rise in the number of free trial starts for both its individual as well as team plans. The company’s business team trials saw a growth of around 40% and individual plans climbed over 25% from mid-March compared to the pre-COVID period.

Dropbox also benefited from the increasing adoption of its products which are seen as easy to integrate and use. Weekly active users of its desktop app increased by around 60% over the past few months. UK-based Usborne Publishing, which became a Dropbox Business customer recently, cited the integrations with Adobe products being a key reason for adopting the platform.  

During the quarter, Dropbox added new features to its deep integration with Zoom and with the shift to remote work, the company saw a 20 times increase in Zoom integration usage heading into April versus February levels.

The company’s solutions are gaining popularity not only among corporate users looking to manage their work flow through employees working remotely, but also with educational institutions adopting a remote learning model. Solutions such as HelloWorks and Dropbox Paper saw increased demand during the pandemic period.

Dropbox believes that this shift to a remote working model will continue going forward, driving demand for its products and benefiting the company in the long term. A survey by Gartner reveals that 74% of companies plan to shift to more remote work on a permanent basis post COVID-19.

As part of its strategy to drive higher levels of engagement and conversion in order to enable monetization and retention, the company improved its mobile on-boarding flows for users signing up for a Dropbox Plus trial. These efforts are driving improvements in the mobile trial conversion rate.

During the first quarter, Dropbox saw an improvement in margins driven by unit cost efficiency gains and a decrease in sales and marketing expenses helped by efficiencies in marketing spend. On the flip side, R&D expenses rose due to new product development and testing.

These factors helped the company achieve GAAP profitability for the first time in Q1 and despite some possible fluctuations from quarter to quarter, Dropbox expects to be GAAP profitable for fiscal year 2020.   

Looking ahead, Dropbox believes its product portfolio makes it well-positioned to support the growing shift towards remote work and remote learning that is taking place worldwide. Although still early, the company is seeing encouraging trends in terms of team and individual trial volumes.

Dropbox has guided for revenue of $463-466 million for the second quarter of 2020. For the full year, the company revised its revenue outlook to $1.88-1.90 billion from the previous range of $1.89-1.90 billion.

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