Core Viewpoint - Dropbox's CFO Timothy Regan will resign after five years, with Ross Tennenbaum appointed as his successor, indicating a leadership transition within the company [1] Company Summary - Timothy Regan has served as CFO of Dropbox for five years [1] - Ross Tennenbaum, a senior executive, will take over the CFO role [1]

Group 1 - The difficulty in obtaining funding for B2C businesses compared to B2B companies is a well-known fact in the VC and startup world [1] - Dropbox is highlighted as a mature, public software company, illustrating the contrast between B2C and B2B funding challenges [1] - Gary Alexander's extensive experience in both Wall Street and Silicon Valley provides insights into current industry themes and trends [1]

Core Insights - The article emphasizes the importance of investing in high-quality stocks and businesses that are managed by disciplined capital allocators, which can generate exceptional returns on capital and compound invested capital over long periods of time [1] Group 1 - The investment philosophy focuses on acquiring stocks of companies that demonstrate strong management and capital allocation skills [1] - The preferred businesses are those that can sustain high returns on capital over time, indicating a robust business model [1]

Core Insights - The article emphasizes the importance of investing in high-quality stocks and businesses that are managed by disciplined capital allocators, which can generate exceptional returns on capital and compound invested capital over long periods of time [1] Group 1 - The investment philosophy focuses on acquiring stocks of companies that demonstrate strong management and capital allocation skills [1] - The preferred businesses are those that can sustain high returns on capital over time, indicating a robust business model [1]

Core Insights - The Zacks Premium service provides tools for investors to enhance their stock market strategies and confidence in investing [1] - Zacks Style Scores are indicators that help investors select stocks likely to outperform the market in the short term [2] Zacks Style Scores Overview - The Style Scores categorize stocks into four types: Value Score, Growth Score, Momentum Score, and VGM Score, each focusing on different investment strategies [3][4][5][6] - Value Score identifies undervalued stocks using financial ratios [3] - Growth Score assesses a company's financial health and future growth potential [4] - Momentum Score evaluates stocks based on price trends and earnings outlook [5] - VGM Score combines all three styles to provide a comprehensive assessment of stocks [6] Zacks Rank and Style Scores Interaction - The Zacks Rank is a proprietary model that uses earnings estimate revisions to help investors build successful portfolios [7] - Stocks rated 1 (Strong Buy) have historically outperformed the S&P 500, with an average annual return of +23.93% since 1988 [7] - Investors are encouraged to select stocks with a Zacks Rank of 1 or 2 and Style Scores of A or B for optimal returns [9] - Stocks with lower ranks, even with good Style Scores, may still face declining earnings forecasts [10] Company Spotlight: Dropbox (DBX) - Dropbox operates a cloud-based platform with over 700 million registered users in approximately 180 countries [11] - Currently rated 3 (Hold) by Zacks, Dropbox has a VGM Score of A and a Growth Style Score of A, indicating potential for growth [11] - The company is projected to achieve a year-over-year earnings growth of 9.6% for the current fiscal year [11] - Recent earnings estimates for fiscal 2025 have been revised upward, with the Zacks Consensus Estimate increasing by $0.04 to $2.73 per share [12] - Dropbox has an average earnings surprise of +14.7%, making it a noteworthy option for investors [12]

Financial Performance - Dropbox reported third-quarter revenue of $634.4 million, flat year-over-year but exceeding analyst expectations [1] - Adjusted earnings per share were $0.74, beating Wall Street's expectations by 14.1% [1] - Operating margins improved to 27.5%, up from 20% in the same quarter last year [1] - The company generated free cash flow of $293.7 million [1] Stock Performance - Shares of Dropbox increased by 9.7% during the afternoon session, closing at $30.86, a 7.5% rise from the previous close [1][2] - The stock is up 4.4% since the beginning of the year and is trading close to its 52-week high of $33.27 [5] - The stock has shown low volatility, with only four moves greater than 5% in the past year, indicating that the market views the recent news as significant [3] User Metrics - There was a slight sequential decline in total paying users, but the focus remained on strong profitability metrics [1]

Revenue and User Metrics - Total annual recurring revenue (Total ARR) as of September 30, 2025, was $2,536 million, a decrease from $2,574 million as of December 31, 2024, and $2,579 million as of September 30, 2024[219]. - The number of paying users as of September 30, 2025, was 18.07 million, down from 18.22 million as of December 31, 2024, and 18.24 million as of September 30, 2024[225]. - Average revenue per paying user (ARPU) for the three months ended September 30, 2025, was $139.07, slightly up from $139.05 for the same period in 2024[229]. - Revenue for the three months ended September 30, 2025, was $634.4 million, a slight decrease from $638.8 million in the same period of 2024; revenue for the nine months ended September 30, 2025, was $1,884.8 million, down from $1,904.6 million in 2024[253]. - Revenue for the nine months ended September 30, 2025, was $1,884.8 million, a decrease of $19.8 million or 1.0% compared to $1,904.6 million in 2024[264]. Financial Performance - The overall performance exceeded expectations amid ongoing macroeconomic uncertainty, with DocSend delivering strong growth while Dropbox Sign and FormSwift modestly exceeded expectations[211]. - Free cash flow (FCF) for the nine months ended September 30, 2025, was $705.9 million, an increase from $661.1 million in the same period of 2024, primarily due to higher cash from operating activities and lower capital expenditures[234]. - The net income for the three months ended September 30, 2025, was $123.8 million, an increase from $106.7 million in 2024; for the nine months, net income rose to $399.7 million from $349.5 million[253]. - The company expects free cash flow to generally increase in the near term due to operating efficiencies, despite anticipated increases in capital expenditures in the last quarter of 2025[233]. Expenses and Cost Management - The cost of revenue for the three months ended September 30, 2025, was $128.3 million, compared to $111.5 million in 2024; for the nine months, it increased to $368.7 million from $324.3 million[253]. - Gross profit for the three months ended September 30, 2025, was $506.1 million, down from $527.3 million in 2024; for the nine months, gross profit was $1,516.1 million, compared to $1,580.3 million in 2024[253]. - Operating expenses for the three months ended September 30, 2025, totaled $331.4 million, a decrease from $399.5 million in 2024; for the nine months, operating expenses were $989.2 million, down from $1,182.0 million[253]. - Research and development expenses for the three months ended September 30, 2025, were $182.3 million, compared to $225.7 million in 2024; for the nine months, these expenses decreased to $545.1 million from $671.9 million[253]. - Sales and marketing expenses for the three months ended September 30, 2025, were $91.5 million, down from $110.5 million in 2024; for the nine months, these expenses decreased to $271.3 million from $331.8 million[253]. - General and administrative expenses for the three months ended September 30, 2025, were $57.6 million, compared to $63.3 million in 2024; for the nine months, these expenses decreased to $170.2 million from $178.3 million[253]. Strategic Decisions and Investments - A strategic decision to significantly reduce investments in FormSwift at the beginning of 2025 negatively impacted annual recurring revenue (ARR), revenue, and paying users[202]. - The company incurred $3.7 million in expenses related to workforce reduction during the three and nine months ended September 30, 2025[213]. - The company primarily generates over 90% of its revenue from self-serve channels, encouraging registered users to convert to paid plans through various marketing tactics[208]. - The company’s business model includes a range of subscription plans tailored for individuals, families, teams, and organizations, with a focus on increasing conversion rates and expanding existing customers[200]. Macroeconomic Factors - Macroeconomic factors such as inflation and geopolitical issues may adversely impact the company's results of operations and financial performance[210]. Cash Flow and Financing Activities - For the nine months ended September 30, 2025, net cash provided by operating activities was $716.4 million, an increase of $36.1 million compared to the same period in 2024, primarily due to a $65.7 million increase in net income[284][287]. - Net cash used in financing activities for the nine months ended September 30, 2025, was $1,389.9 million, which included $1,298.9 million for the repurchase of common stock[293][294]. - The company completed three separate $1.2 billion Class A common stock repurchase programs since February 2022, with a new authorization for an additional $1.5 billion in August 2025[282]. - The company had $1,142.1 million outstanding under the term loan facility as of September 30, 2025, with $1,550.0 million available to draw[279][299]. - The company entered into a secured five-year term loan facility in December 2024 for up to $2.0 billion, with additional secured delayed draw term loan commitments of up to $700.0 million added in September 2025[278]. Foreign Currency Risks - 27% of the company's sales were denominated in currencies other than U.S. dollars during the nine months ended September 30, 2025[302]. - The company's expenses are primarily denominated in U.S. dollars, leading to potential margin declines if the U.S. dollar strengthens against foreign currencies[302]. - Foreign currency transaction gains or losses were immaterial for the nine months ended September 30, 2025 and 2024[303]. - A hypothetical 10% change in foreign currency rates would not have resulted in material gains or losses for the nine months ended September 30, 2025 and 2024[303]. - The company has not engaged in any hedging activities to manage foreign currency risks to date[303]. - The company's international operations are subject to fluctuations in foreign currency exchange rates, particularly the U.S. dollar-Euro and U.S. dollar-British pounds sterling exchange rates[302]. - The company will continue to reassess its approach to managing risks related to currency rate fluctuations as its international operations grow[303]. - Most of the company's revenue is generated in U.S. dollars, with the remainder in Euros, British pounds sterling, Australian dollars, Canadian dollars, and Japanese yen[300]. - The functional currency of the company's international headquarters is denominated in U.S. dollars[301]. - The company's results of operations and cash flows are subject to fluctuations due to changes in foreign currency exchange rates unrelated to operating performance[301].

Core Insights - Dropbox reported third-quarter 2025 non-GAAP earnings of 74 cents per share, exceeding the Zacks Consensus Estimate by 15.63% and increasing 23.3% year over year [1][8] - Revenues for the quarter were $634.4 million, a decline of 0.7% year over year, but still beating the consensus mark by 1.75% [1][8] - Total annual recurring revenues (ARR) were $2.54 billion, down 1.7% year over year [1][8] Financial Performance - The company had 18.07 million paying users at the end of Q3 2025, a decrease from 18.24 million in the same quarter last year [3] - Average revenue per paying user (ARPU) was $139.07, slightly up from $139.05 year over year [3] - Non-GAAP gross margin was 81.4%, down 270 basis points year over year [4] - Research and development expenses were $125 million, down 19.6% year over year, while sales and marketing expenses decreased 9.4% to $91.5 million [4] - General and administrative expenses rose 18% year over year to $57.6 million [4] - Non-GAAP operating margin was 27.5%, down 870 basis points year over year [4] Balance Sheet & Cash Flow - As of September 30, 2025, Dropbox had cash, cash equivalents, and short-term investments totaling $925.3 million, down from $954.7 million as of June 30 [5] - Cash generated by operating activities was $302.1 million in the reported quarter, compared to $260.5 million in the previous quarter [5] - Free cash flow for the quarter was $293.7 million, up from $224.7 million in the previous quarter [5] - The company repurchased 14 million shares for $393 million, with $1.5 billion remaining under existing share repurchase authorizations [6] Guidance - For Q4 2025, Dropbox expects revenues between $626 million and $629 million, with a non-GAAP operating margin of approximately 37% [7][8] - For the full year 2025, revenues are expected to be between $2.511 billion and $2.514 billion, with a gross margin of 82% and a non-GAAP operating margin of 40% [9] - Unlevered free cash flow is anticipated to be at or above $1 billion, with capital expenditures between $25 million and $30 million [9]

Core Insights - Dropbox reported Q3 CY2025 results with revenue of $634.4 million, flat year-on-year, but exceeding analyst expectations of $624.1 million, representing a 1.7% beat [6] - Non-GAAP profit was $0.74 per share, surpassing analyst estimates of $0.65 by 14.1% [6] - Adjusted operating income reached $261 million, with a margin of 41.1%, exceeding expectations of $231.7 million [6] Revenue and Financial Performance - Revenue remained flat year-on-year at $634.4 million, but beat analyst estimates [6] - Annual recurring revenue was $2.54 billion, slightly above estimates, but showed a 1.7% year-on-year decline [6] - Market capitalization stood at $7.74 billion [6] Operational Highlights - Management attributed performance to improved retention in individual and self-serve team plans and operational efficiency [3] - CEO Andrew Houston noted a 75% reduction in search latency for the new Dash AI product, contributing to product engagement [3] - Customer satisfaction scores reached the highest level in the individuals segment, aiding retention [8] Dash AI and Future Outlook - The Dash AI platform is a key focus for scaling, with management indicating that 2026 will be crucial for its growth [4] - Early engagement with Dash showed 60% of managed users active at least twice weekly, indicating strong initial adoption [7] - Continued investment in AI talent and marketing is expected to support adoption, particularly among small and medium-sized businesses [4] Challenges and Strategic Adjustments - The company faced headwinds from the exit of FormSwift and reduced managed sales investment, impacting near-term revenue [4] - Downsizing in the managed sales channel contributed to a decline in paying users, but management is focused on stabilizing this segment [8] - Recent acquisitions, such as Mobius Labs, are aimed at enhancing multimodal AI capabilities and product differentiation [8]

Core Viewpoint - Dropbox reported quarterly earnings of $0.74 per share, exceeding the Zacks Consensus Estimate of $0.64 per share, and showing an increase from $0.60 per share a year ago, representing an earnings surprise of +15.63% [1][2] Financial Performance - The company achieved revenues of $634.4 million for the quarter ended September 2025, surpassing the Zacks Consensus Estimate by 1.75%, although this is a decrease from $638.8 million in the same quarter last year [2] - Over the last four quarters, Dropbox has consistently surpassed consensus EPS estimates and revenue estimates [2] Stock Performance - Dropbox shares have declined approximately 3% since the beginning of the year, contrasting with the S&P 500's gain of 15.6% [3] - The current Zacks Rank for Dropbox is 3 (Hold), indicating expected performance in line with the market in the near future [6] Future Outlook - The consensus EPS estimate for the upcoming quarter is $0.63 on revenues of $621.12 million, and for the current fiscal year, it is $2.69 on revenues of $2.5 billion [7] - The outlook for the Internet - Services industry, where Dropbox operates, is currently in the top 39% of Zacks industries, suggesting a favorable environment for performance [8]