Dropbox (NASDAQ: DBX) now has two quarters behind it as a publicly traded company. Highlighting the company’s impressive growth, the cloud-storage provider’s recently reported second-quarter results boasted 27% year-over-year revenue growth and substantial free cash flow of $102.2 million — crushing the $7.3 million of free cash flow cloud-storage competitor Box, Inc. (NYSE: BOX) garnered in its most recently reported quarter.
But as investors get to know this young and fast-growing company, they may want to go beyond Dropbox’s earnings releases and listen to its earnings calls. Two interesting topics that surfaced during Dropbox’s second-quarter earnings call included a discussion of what’s driving Dropbox’s revenue-per-paying-user growth and management’s outlook for Q3 and the rest of the year.
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Dynamics behind Dropbox’s higher revenue per paying user
Average revenue per paying user, or ARPU, was a key driver for revenue growth during the quarter. ARPU increased from $111.19 a year ago to $116.66. The higher ARPU was helped by the completion of the renewal process of 50% of its grandfathered teams for its Advanced plan, which was launched last year.
One analyst asked Dropbox’s CFO Ajay Vashee for more insight into how price increases are impacting ARPU. He answered, “[F]or folks that are coming up for renewal, our monthly subscribers, as well as for annual subscribers that reach an expiration period last quarter, a meaningful portion of them elected to remain on our Advanced plan at roughly a 30% price premium.”
The willingness of users to opt into a higher-priced product is a good sign for Dropbox’s longer-term pricing power.
But there was more to Dropbox’s rising ARPU than higher-priced products. According to Vashee: “But I do want to clarify that for us, that [ARPU] expansion that we’ve driven is really a reflection of the value that we’re delivering to our users. It’s a function of higher attach rates to our premium [offerings] and not a general pricing increase.”
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Looking ahead
Dropbox opts to provide its quarterly and full-year outlook in its earnings calls. For Q3, management said it expected revenue between $350 and $353 million, representing about 23% year-over-year growth based on the midpoint of this guidance range. This represents a deceleration from Dropbox’s 27% year-over-year revenue growth in Q2.
For the full year, management boosted its guidance for its top line and for non-GAAP operating margin, highlighting management’s increased confidence in the company’s ability to grow its business in 2018.
Vashee detailed the new outlook:
Dropbox’s full-year outlook represents 23% to 24% year-over-year growth — a deceleration from 31% year-over-year revenue growth in 2017. But this is notably faster than the 20% year-over-year revenue growth Box is expecting for its current fiscal year.
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