Dropbox declines as ARR and paid users continue to decline. By Investing.com

© Reuters. Dropbox (DBX) plummeted as ARR and paid users sequentially declined.

Dropbox (NASDAQ:) reported fourth-quarter earnings showing a slight increase in revenue, but its stock price plummeted amid concerns about annual recurring revenue (ARR) and the number of paying users. The company’s fourth-quarter earnings per share (EPS) of $0.50 beat analysts’ expectations by $0.02, and revenue rose slightly to $635 million, topping the consensus estimate of $631.57 million.

Despite a 6.0% increase in sales compared to the same quarter last year, Dropbox’s stock price plummeted 12.85% after the earnings announcement, showing investors’ anxiety about the company’s performance. The decline in ARR and the number of paid users, which decreased by 500,000 compared to the previous quarter, are considered key factors leading to the negative market reaction.

Dropbox CEO Drew Houston highlighted the company’s increased profitability and adoption of AI-based products like Dash. Houston emphasized its focus on driving cash flow and improving efficiencies in its core file sync and sharing (FSS) business, along with strategic investments in the fast-growing AI market.

The company’s total ARR recorded a slight increase of 0.3%, with continued currency-based growth of 3.8%. However, concerns were raised among investors as ARR declined by $2.2 million quarter-over-quarter. Additionally, Dropbox’s paid user base increased from 17.77 million the previous year to 18.12 million, and average revenue per user increased from $134.53 to $138.83.

Dropbox also reported GAAP net income of $227.3 million, down from $328.3 million in the same period last year due to the impact of a one-time net gain on real estate assets. Adjusted net income increased to $170.8 million from $141.2 million in the year-ago quarter. The company’s free cash flow improved slightly to $190.3 million from $181.7 million a year ago.

Following the report, investors are weighing the company’s revenue growth against the backdrop of declining ARR and user base. The market’s response highlights the challenges Dropbox faces as it navigates a competitive landscape while leveraging new opportunities in AI.

In response to the report, analysts at JMP Securities downgraded Dropbox from Market Outperform to Market Perform, reporting that Dropbox experienced sequential declines in ARR and paying users “along with mixed fourth quarter performance.” The company’s ARR of $2.52 billion ($2.57 billion consensus), which includes non-GAAP EPS, was up 0% year-over-year and down slightly sequentially, while its paid users of 18.12 million were below the consensus of 18.2 million. and decreased by 50,000 in succession.

JPMorgan analysts downgraded DBX from overweight to neutral and lowered their price target from $33 per share to $30. The bank said its shares are up 72% in the past 11 months and sees a challenging setup for growth over the next few years.