Summary
Dropbox reported second-quarter revenue of $622.5 million, up 8.7% from the same quarter last year. Constant currency revenue growth was 11.2%. Total ARR ended at $2.500 billion, up 7.2% year over year. On a constant currency basis, Total ARR growth was 10.9%, and it rose $32.6 million quarter over quarter. Paying users finished at 18.04 million, compared with 17.37 million a year earlier. The MD&A attributes part of the revenue lift to pricing and packaging changes, and it also warns that paying user growth has declined and may fluctuate from period to period.
Profitability took a hit. Gross profit was $502.4 million, up 7.6%, but gross margin slipped to 80.7%, down 0.8 percentage points from the prior-year quarter. Operating income fell 31.8% to $56.5 million, and operating margin dropped to 9.1%, down 5.4 percentage points. Net income was $43.2 million, down 30.3%, and diluted EPS was $0.13, down from the prior-year quarter. The decline came alongside a workforce reduction announced in April 2023 that cut global headcount by approximately 16%. Non-GAAP operating margin was 34.2%, compared with 31.9% a year earlier, which highlights how much the charges and stock-based compensation changed the GAAP picture.
Cash flow softened. Operating cash flow was $187.6 million, down 10.6% from the prior-year quarter, and capital expenditures were $3.0 million, down 25.0%. Free cash flow, a non-GAAP measure, was $184.6 million, compared with $205.9 million a year earlier. The company said second-quarter cash flows included $34.0 million of expenditures relating to the reduction in workforce. Deferred revenue ended at $734.5 million, up 6.2% year over year, a sign that advance billing remains steady. Dropbox also said its board authorized an additional $1.2 billion of Class A common stock repurchases in July 2023. During the first half, the company repurchased and retired 15.0 million shares, extending a capital return program that has been a core part of the equity story.
Management focused on product and AI. The release highlighted Dropbox Dash and Dropbox AI as new AI-powered experiences. The MD&A said FormSwift exceeded expectations and trends improved in Individual plans, but macro headwinds continued to weigh on Teams plans and on DocSend and Dropbox Sign. Foreign exchange was still a drag, which is why reported revenue growth of 8.7% becomes 11.2% on a constant currency basis. Dropbox serves more than 700 million registered users across approximately 180 countries, and over 90% of revenue comes from self-serve channels. No customer accounted for more than 1% of revenue in the period. That diversification limits single-customer risk, but it also means broad pressure on small business and team spending can show up quickly.
Risks listed in the release include retaining and upgrading paying users, converting registered users to paid plans, pricing and packaging changes, competition, rapid technological change, data security breaches, and economic uncertainty. The MD&A also notes that revenue growth depends on raising average revenue per paying user if user growth stays soft. Dropbox said it would provide forward-looking guidance on its quarterly earnings call and investor relations website. The quarter leaves a mixed picture: top-line growth and adjusted profitability held up, but GAAP operating income, net income, EPS, and operating cash flow all declined year over year.
Forecast
No forward guidance in this quarter's filings.
Reported figures
GAAP, from SEC filings| Metric | Q2 FY2023 | Q1 FY2023 | QoQ | Q2 FY2022 | YoY |
|---|---|---|---|---|---|
| Revenue | $622.5M | $611.1M | +1.9% | $572.7M | +8.7% |
| Gross profit | $502.4M | $494.3M | +1.6% | $466.9M | +7.6% |
| Gross margin | 80.7% | 80.9% | -0.2 pp | 81.5% | -0.8 pp |
| Research & development | $262.8M | $235.2M | +11.7% | $215.0M | +22.2% |
| Sales & marketing | $120.9M | $119.2M | +1.4% | $105.0M | +15.1% |
| General & administrative | $60.0M | $55.8M | +7.5% | $55.3M | +8.5% |
| Total operating expenses | $445.9M | $410.2M | +8.7% | $384.0M | +16.1% |
| Operating income (loss) | $56.5M | $84.1M | -32.8% | $82.9M | -31.8% |
| Operating margin | 9.1% | 13.8% | -4.7 pp | 14.5% | -5.4 pp |
| Net income (loss) | $43.2M | $69.0M | -37.4% | $62.0M | -30.3% |
| Net margin | 6.9% | 11.3% | -4.3 pp | 10.8% | -3.9 pp |
| Diluted EPS | $0.13 | $0.20 | -$0.07 | $0.17 | -$0.04 |
Risks
MD&A states macro headwinds continued to weigh on Teams plans and both DocSend and Dropbox Sign in the three and six months ended June 30, 2023; revenue rose 8.7% in FY2023 Q2 but was partly offset by a $16.5 million unfavorable foreign exchange impact in the quarter.
Risk Factors say Dropbox has made and will continue making significant investments in AI products while competing in a highly competitive AI marketplace; it cites regulatory uncertainty from the EU's proposed Artificial Intelligence Act and possible reputational, operational, or legal liability from unforeseen AI failures.
MD&A states overall paying user growth rate has declined and may decline in the future; as of June 30, 2023 Dropbox had 18.04 million paying users, and a significant majority of paying customers purchase only one product, while more customers may opt for monthly plans, which could cause renewals to fluctuate or decline.
Risk Factors say the content collaboration market is competitive and rapidly changing, with competitors including Microsoft, Amazon, Apple, Google, Adobe, Atlassian, Slack, and Box; competitors may offer lower-priced or free products or bundle offerings, potentially forcing Dropbox to cut prices or increase marketing spend.
MD&A states Dropbox announced on April 27, 2023 a reduction of global workforce by approximately 16% and incurred $37.5 million of severance, benefits, and other related expenses in the three and six months ended June 30, 2023; Risk Factors warn this may increase attrition, reduce morale, and harm recruiting and retention.
Reported figures show operating margin down 5.4 pp in FY2023 Q2 versus prior-year quarter and operating income down 31.8%, while MD&A attributes higher operating expenses partly to $37.5 million of reduction-in-workforce expenses and increased stock-based compensation.
Risk Factors disclose a recent past error in use of a trusted third party for anti-malware and phishing services caused URLs embedded within content shared on Dropbox or uploaded to DocSend to be made available to other paid subscribers and partners; although only URLs were sent and the provider deleted them, this illustrates data security and third-party risk.
Risk Factors and MD&A highlight the Virtual First model may leave Dropbox with unused office space; MD&A recorded $2.2 million of real estate impairment in the three and six months ended June 30, 2023 and may incur additional charges depending on the corporate real estate market or ability to sublease space.
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
ARPU
Summary, forecast, risks and KPIs are extracted from DROPBOX, INC.'s SEC filings for Q2 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.