Summary
Dropbox reported second-quarter fiscal 2021 revenue of $530.6 million, up 13.5% from the prior-year quarter. Constant currency revenue growth was 11.4%. Total ARR ended the quarter at $2.166 billion, an increase of $53.8 million quarter over quarter and 12.2% year over year. On a constant currency basis, Total ARR growth was 10.6%. Paying users rose to 16.14 million from 14.96 million in the prior-year quarter. Management tied the top-line expansion to more paying users and a richer mix of higher-priced subscription plans. Dropbox said no customer accounted for more than 1% of revenue and more than 90% of revenue came from self-serve channels.
Profitability improved sharply on a GAAP basis. Gross profit was $423.5 million, up 16.1% from the prior-year quarter, and GAAP gross margin was 79.8%, up from 78.1%. GAAP operating income was $84.4 million, up from $12.8 million in the prior-year quarter. GAAP operating margin was 15.9%, up from 2.7%. GAAP net income was $88.0 million, up from $17.5 million, and GAAP diluted EPS was $0.22, up from $0.04. On a non-GAAP basis, operating income was $169.4 million, up 76.1% year over year, non-GAAP operating margin was 31.9%, up from 20.6%, and non-GAAP net income was $160.5 million, compared with $93.2 million. Non-GAAP diluted EPS was $0.40, compared with $0.22. Non-GAAP gross margin was 81.2%, up from 79.2%.
Cash generation also stood out. Net cash provided by operating activities was $219.9 million, up from $145.9 million in the prior-year quarter. Free cash flow, a non-GAAP measure, was $216.0 million, compared with $119.8 million. Free cash flow margin was 40.7%, compared with 25.6%. Capital expenditures were $3.9 million, down from $26.1 million, as the company reduced office build-out spending. The balance sheet showed deferred revenue of $657.5 million, up 12.7% from the prior-year quarter, and remaining performance obligations of $715.0 million, up 11.6%. Those forward-looking revenue indicators reflect advance billing and subscription sales.
Dropbox continued to push its strategic reset. The company acquired DocSend in the first quarter of fiscal 2021 and has worked to combine it with HelloSign to cover document workflows from collaboration to e-signature. Management also completed a reduction in force in January 2021 to streamline operations and has shifted to a Virtual First work model. That shift led to real estate impairment charges for the six months ended June 30, 2021, and the company said it expects additional charges related to certain European leases. The model is intended to lower facilities costs and depreciation over time, but management cautioned that the long-term financial impact is uncertain.
Dropbox said it would provide forward-looking guidance in connection with the quarterly earnings announcement on its conference call, webcast and investor relations website. Management also said it expects free cash flow to generally increase in future periods as subscription sales grow and capital expenditures decline with Virtual First. Gross margin is expected to remain relatively constant in the near term and the long term. The release pointed to a long list of risks. These include retaining and upgrading paying users, converting registered users to paid plans, competition, data security and service disruptions, the uncertain impact of COVID-19, and the execution of the Virtual First strategy. The company also cited its history of net losses and ability to maintain profitability, rapid technological change, and acquisition integration. For the quarter, revenue growth, margin expansion and cash generation all point to a business scaling profitably. The durability of those gains depends on paying user growth, ARPU trends, and the company's ability to manage its cost structure while investing in new products.
Forecast
No forward guidance in this quarter's filings.
Reported figures
GAAP, from SEC filings| Metric | Q2 FY2021 | Q1 FY2021 | QoQ | Q2 FY2020 | YoY |
|---|---|---|---|---|---|
| Revenue | $530.6M | $511.6M | +3.7% | $467.4M | +13.5% |
| Gross profit | $423.5M | $402.3M | +5.3% | $364.9M | +16.1% |
| Gross margin | 79.8% | 78.6% | +1.2 pp | 78.1% | +1.8 pp |
| Research & development | $185.5M | $181.2M | +2.4% | $185.8M | -0.2% |
| Sales & marketing | $100.8M | $102.7M | -1.9% | $102.8M | -1.9% |
| General & administrative | $52.8M | $58.6M | -9.9% | $63.5M | -16.9% |
| Total operating expenses | $339.1M | $359.8M | -5.8% | $352.1M | -3.7% |
| Operating income (loss) | $84.4M | $42.5M | +98.6% | $12.8M | +559.4% |
| Operating margin | 15.9% | 8.3% | +7.6 pp | 2.7% | +13.2 pp |
| Net income (loss) | $88.0M | $47.6M | +84.9% | $17.5M | +402.9% |
| Net margin | 16.6% | 9.3% | +7.3 pp | 3.7% | +12.8 pp |
| Diluted EPS | $0.22 | $0.12 | +$0.10 | $0.04 | +$0.18 |
Risks
The shift to a Virtual First workforce reduces office space needs and already produced a $17.3 million real estate impairment during the six months ended June 30, 2021, after a $398.2 million impairment in the year ended December 31, 2020. Failure to sublease unused space on favorable terms or subtenant defaults could lead to additional impairment charges and harm cash flows and GAAP profitability.
The January 2021 reduction of about 11% of the global workforce resulted in $13.7 million of severance and related expenses during the six months ended June 30, 2021, and may increase attrition, reduce morale, and hurt recruiting. The Virtual First model and reliance on CEO Andrew W. Houston add execution and retention risk.
Dropbox competes in cloud storage with Microsoft, Amazon, Apple, and Google, and in content collaboration with Microsoft, Atlassian, Slack, and Google, some of which can bundle or offer lower-priced or free products. This could force price cuts or higher marketing spend and pressure revenue growth.
As of June 30, 2021, Dropbox had over 700 million registered users but only 16.14 million paying users, and a majority of registered users may never convert to paid subscriptions. Slowing user growth and less expensive bundled competitive products may further limit conversion and revenue growth.
Dropbox stores sensitive user content and has faced a prior incident involving credentials for approximately 68 million accounts. Emerging threats such as the SolarWinds attack and a more distributed Virtual First workforce increase breach risk, which could damage reputation, revenue, and user trust.
More than 90% of revenue comes from self-serve channels, and the January 2021 workforce reduction further reduced the outbound sales force. Moving upmarket to large organizations may lengthen sales cycles and deployment challenges, with COVID-19 travel limits adding further unpredictability.
In February 2021 Dropbox issued approximately $1.4 billion aggregate principal amount of 2026 Notes and 2028 Notes, increasing fixed obligations and restrictive covenants. Servicing the notes may require significant cash, and conversion into Class A common stock could dilute stockholders and depress the stock price.
Dropbox acquired DocSend in the first quarter of fiscal 2021 to expand document workflows, but it has limited acquisition experience. Integration challenges and potential goodwill impairment if expected returns are not achieved could disrupt operations and hurt results.
Revenue growth has slowed in recent periods and may continue to slow due to higher market penetration, competition from less expensive bundled products, slowing demand, and business maturation. Although revenue rose 13.5% in the quarter ended June 30, 2021, investors should not rely on prior growth rates.
As of June 30, 2021, directors, executive officers, and holders of more than 5% of common stock held 77.7% of voting power, with Mr. Houston holding approximately 71.9%. This concentrated control limits other stockholders' influence and may depress the trading price of Class A common stock.
The full impact of COVID-19 remains uncertain and could negatively affect paying user growth, renewals, payment terms, foreign exchange rates, and vendor operations; results may not fully reflect the pandemic until future periods. Dropbox also remains exposed to recessionary pressure on discretionary subscription spending.
SaaS KPIs
All quarters →Paying users
Free cash flow
Total ARR
Free cash flow margin
Non-GAAP operating margin
Non-GAAP gross margin
Registered users
Average revenue per paying user
Summary, forecast, risks and KPIs are extracted from DROPBOX, INC.'s SEC filings for Q2 FY2021 (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 2, 2026.