Summary
Dropbox opened fiscal 2023 with revenue of $611.1 million in the first quarter, up 8.7% from the prior-year quarter. Gross profit rose 10.0% to $494.3 million. Gross margin improved to 80.9%, up 1.0 percentage point. The top line benefited from additional paying users, the FormSwift acquisition, and the repricing and repackaging of Standard and Advanced plans, partly offset by a $16.5 million unfavorable foreign exchange impact. Profitability moved the other way. Operating income fell 6.0% to $84.1 million, and operating margin slipped to 13.8%, down 2.2 percentage points. Net income dropped 13.4% to $69.0 million. Diluted EPS came in at $0.20, down 4.8%.
The user base kept growing, though management flagged slower momentum. Paying users reached 17.90 million as of March 31, 2023, compared with 17.77 million at December 31, 2022, and 17.09 million at March 31, 2022. Total ARR was $2,468 million as of March 31, 2023, down from $2,514 million at December 31, 2022, but up from $2,290 million a year earlier. On a constant currency basis, Total ARR was $2,468 million, compared with $2,430 million at December 31, 2022, and $2,212 million at March 31, 2022. Average revenue per paying user improved, helped by the Standard and Advanced repricing, a greater mix of higher-priced plans, and the FormSwift acquisition, partly offset by unfavorable foreign exchange rates. Dropbox serves more than 700 million registered users across approximately 180 countries, and it gets over 90% of revenue from self-serve channels. No customer accounted for more than 1% of revenue in the period. Macro headwinds weighed on Teams plans, and softness continued at DocSend and Dropbox Sign. On April 27, 2023, the company announced a reduction of its global workforce by approximately 16%.
Cash generation was steady but slightly lower. Operating cash flow was $139.9 million, down 1.1% from the prior-year quarter. Capital expenditures were $1.9 million, down 82.2%. Free cash flow, a non-GAAP measure, was $138.0 million, up from $130.7 million, which the company attributed primarily to lower capital expenditures. Current deferred revenue was $727.7 million, up 5.2% from a year earlier. As of March 31, 2023, Dropbox had no amounts outstanding under its revolving credit facility, $38.8 million in letters of credit issued under the facility, and total available borrowing capacity of $461.2 million. It repurchased and retired 8.1 million shares of Class A common stock for $176.5 million during the quarter.
Management's outlook in the filing is directional rather than a next-quarter or full-year revenue forecast. It expects cost of revenue to increase in absolute dollars, gross margin to remain relatively constant, research and development costs to decrease in the near term, sales and marketing costs to decrease in the near term, and general and administrative expenses to fluctuate while remaining relatively constant as a percentage of revenue. It also expects free cash flow to generally increase in future periods. The risk list is familiar but real. Paying user growth has declined and may decline further. Revenue growth will fall if the company cannot raise average revenue per paying user to offset slower growth or a decline in paying users. Macroeconomic pressure on Teams plans, softness at DocSend and Dropbox Sign, foreign exchange swings, and potential additional charges from the corporate real estate market and Virtual First strategy all remain overhangs. The company also said cash tax obligations will increase in the foreseeable future after using a significant portion of its net operating losses. Management said it remains optimistic about its strategy as it invests for the future in the new AI era.
Forecast
No forward guidance in this quarter's filings.
Reported figures
GAAP, from SEC filings| Metric | Q1 FY2023 | Q4 FY2022 | QoQ | Q1 FY2022 | YoY |
|---|---|---|---|---|---|
| Revenue | $611.1M | $598.8M | +2.1% | $562.4M | +8.7% |
| Gross profit | $494.3M | $483.0M | +2.3% | $449.5M | +10.0% |
| Gross margin | 80.9% | 80.7% | +0.2 pp | 79.9% | +1.0 pp |
| Research & development | $235.2M | $238.5M | -1.4% | $210.8M | +11.6% |
| Sales & marketing | $119.2M | $105.1M | +13.4% | $95.7M | +24.6% |
| General & administrative | $55.8M | $57.3M | -2.6% | $53.5M | +4.3% |
| Total operating expenses | $410.2M | $563.4M | -27.2% | $360.0M | +13.9% |
| Operating income (loss) | $84.1M | -$80.4M | +204.6% | $89.5M | -6.0% |
| Operating margin | 13.8% | -13.4% | +27.2 pp | 15.9% | -2.2 pp |
| Net income (loss) | $69.0M | $328.3M | -79.0% | $79.7M | -13.4% |
| Net margin | 11.3% | 54.8% | -43.5 pp | 14.2% | -2.9 pp |
| Diluted EPS | $0.20 | $0.90 | -$0.70 | $0.21 | -$0.01 |
Risks
MD&A states macro headwinds weighed on Teams plans as customers faced pressure in their own businesses, and on DocSend and Sign due to ongoing softness in their respective markets during the three months ended March 31, 2023. It also cites rising inflation, Federal Reserve rate increases, banking-sector volatility, tighter credit markets, corporate real estate changes, supply chain disruptions, and foreign exchange fluctuations as factors that impacted results.
Risk factors state Dropbox has made and intends to continue significant investments in AI features, but such development could incur significant costs and there is no guarantee the new offerings will be successful. The filing also warns that unforeseen failures in newly developed AI technology could cause reputational harm or legal liability, and changes in AI regulation could negatively impact the business.
On April 27, 2023, Dropbox announced a reduction of its global workforce by approximately 16%. The risk factors warn this reduction may result in increased attrition beyond the intended reduction-in-force, reduce employee morale, and negatively impact employee recruiting and retention.
Risk factors state Dropbox's revenue growth rate has declined in recent periods and may continue to slow. MD&A adds that the overall paying user growth rate has declined and may fluctuate, and that if the company does not increase average revenue per paying user, revenue and revenue growth rate will decline.
President Timothy Young stepped down in February 2023, and on March 15, 2023, the President resigned, resulting in a $6.7 million reversal of stock-based compensation expense. Risk factors warn such management changes may cause a loss of institutional knowledge and disruptions to the business.
MD&A states the revenue increase during the three months ended March 31, 2023 was offset by a $16.5 million unfavorable impact from changes in foreign exchange rates across multiple currencies. It also notes sequential Total ARR was negatively impacted by the foreign currency exchange rates used to calculate ARR, which are updated annually at the beginning of the year.
Risk factors disclose that in the recent past an error in use of a trusted third party to provide anti-malware and phishing services resulted in URLs embedded within content shared on Dropbox or uploaded to DocSend being made available to other paid subscribers and partners of that third party. The filing states only the URLs were sent, not the documents or information within them, but the company cannot rule out that malicious actors exploited any URLs.
Risk factors and MD&A state Dropbox's Virtual First shift means it needs less office space than it is contractually committed to lease, and prior quarters included impairment charges due to adverse changes in the San Francisco Bay Area corporate real estate market. Additional or higher impairment charges are possible if the company cannot sublease unused office space on favorable terms or if subtenants fail to pay.
SaaS KPIs
All quarters →Paying users
Free cash flow
Total ARR
Registered users
ARPU
Summary, forecast, risks and KPIs are extracted from DROPBOX, INC.'s SEC filings for Q1 FY2023 (10-Q / 10-K and the 8-K earnings release); GAAP figures in the summary are checked against the reported XBRL data. They can contain errors; the filings are authoritative. Processed Oct 1, 2026.