Dropbox shares sank Friday on an earnings report that included an outlook short of expectations. The results prompted a rare double downgrade from Dropbox stock analysts at BofA Securities, which said the file-sharing company's "bull thesis has played out."
Dropbox said late Thursday that it earned an adjusted 50 cents per share on sales of $635 million for the December quarter. On average, analysts projected the San Francisco-based company would post adjusted earnings of 48 cents per share on sales of $632 million, according to FactSet. For the same period a year earlier, Dropbox posted adjusted earnings of 40 cents per share on sales of $599 million.
On the company's earnings call, Chief Financial Officer Tim Regan told analysts that the company expects 2024 revenue between $2.535 billion and $2.55 billion. That was short of expectations of $2.57 billion, according to FactSet.
On the stock market today, Dropbox stock fell 22.9% to close at 25.08. Shares sank well below the stock's 21-day and 50-day moving averages, according to MarketSmith.
Total Paying Users Declines
Dropbox's 6% year-over-year revenue increase in the fourth quarter marked a slowdown from the 7% annual growth rate Dropbox notched a quarter earlier. Also, the number of paying Dropbox customer dropped to 18.12 million, from 18.17 million in the September quarter.
"While there was a lot to be proud of last year, Q4 was a challenging quarter," Dropbox Chief Executive Drew Houston told analysts Thursday.
Those challenges included, he added, an economy where "customers are being more cautious with their spend and exhibiting higher levels of price sensitivity."
Regan, Dropbox's CFO, said the company expects to add paying customers in 2024, but at a slower pace than the previous year. Part of the challenge, he added, is that the company has "de-emphasized" a family plan option that the company found some business users were improperly purchasing.
DBX Stock Hit With Downgrades
Following the report, BofA analyst Michael Funk double-downgraded Dropbox stock from a buy to an underperform rating. The "bull thesis" for the company has played out, according to Funk.
"Yesterday's results, guidance, and commentary suggest a negative inflection of DBX's risk/reward profile," Funk wrote to clients. "Operational headwinds including increased churn, top-of-funnel weakness, slower share repurchase than projected, and lower free cash flow guidance create a negative setup for shares in 2024."
Meanwhile, JPMorgan analysts downgraded the stock to neutral, from a positive overweight rating. Analyst Mark Murphy wrote to clients Friday that he expects Dropbox shares to "mark time" after gaining 72% in past 11 months.
"We see shares (as) fairly valued in the near-term given ongoing headwinds to top line growth," Murphy wrote.
Dropbox Stock: AI Plans
The 16-year-old company is looking to AI to boost its sales growth. Dropbox last year launched a beta version of a product called Dash. The "AI-powered universal search tool," as Dropbox describes it, allows users to search for files across all apps.
Regan told analysts Thursday that Dash is still early in its life cycle. The company is watching how customers user the tool.
"Once we have increased certainty that Dash is meeting our customers' needs, we will then pursue our monetization strategies," Regan told analysts. "However, this may not be until the latter portion of this year, or early next year."
UBS analyst Rich Hilliker offered a more positive take on Dropbox following the report. The analyst reiterated a buy rating. UBS sees potential in Dropbox's efforts to sell bundled software packages that include broader collaboration tools, including AI services.
"We think there's more low-hanging operational fruit available to optimize while simultaneously investing in AI and long-term initiatives," Hilliker wrote.
Dropbox Stock: Technical Ratings
Prior to earnings, Dropbox gained just under 0.5% to close at 32.54 in Thursday trading. Factoring in Friday's slide, Dropbox stock is down about 13% on the year. Last year, DBX stock gained 32%.
Coming into the report, Dropbox stock had a near-perfect IBD Composite Rating of 98, according to IBD Stock Checkup. The score combines five separate proprietary ratings into one rating.
Further, Dropbox's IBD Relative Strength Rating was 88 out of 99. The rating compares a stock's price movement over the last 52 weeks with that of others in IBD's database.
In addition, Dropbox stock had an Accumulation/Distribution Rating of B+, which indicates more institutional buying than selling of shares.
Prior to earnings, DBX stock was trading above a former buy zone from a consolidation pattern, according to MarketSmith.
