Summary
Dropbox grew revenue 12.9% in the fiscal 2021 third quarter, reporting $550.2 million against $487.4 million in the prior-year quarter. For the nine months ended September 30, 2021, revenue was $1.59 billion, up 13.0%. Management credited more paying users, a mix shift toward higher-priced subscription plans, and favorable foreign exchange rates. On a constant currency basis, year-over-year growth would have been 10.7%. Profitability improved faster than sales. Gross profit was $438.2 million, up 14.1%, and gross margin was 79.6% compared with 78.8%. Operating income of $77.3 million rose 157.7% from $30.0 million, lifting operating margin to 14.0% from 6.2%. Net income was $75.6 million, up 131.2% from $32.7 million, and diluted earnings per share was $0.19 against $0.08.
Cash generation was the strongest part of the quarter. Net cash provided by operating activities was $231.5 million, up 15.2% from $200.9 million, and it reached $567.1 million for the nine months, up 41.7% from $400.1 million. Free cash flow, which Dropbox defines as operating cash flow less capital expenditures, was $221.5 million against $187.0 million, and the free cash flow margin was 40.3% compared with 38.4%. Capital expenditures fell 28.1% to $10.0 million in the quarter and 69.3% to $20.8 million for the nine months as spending on office build-outs dropped under the Virtual First model. Non-GAAP operating income was $161.0 million, up 43.5%, with a non-GAAP operating margin of 29.3% against 23.0%. Non-GAAP net income of $147.1 million compared with $110.2 million, and non-GAAP diluted earnings per share was $0.37 against $0.26.
Operating metrics moved with the business. Total annual recurring revenue ended the quarter at $2.218 billion, up $52.1 million from the prior quarter and up 12.0% from a year earlier, or 10.4% on a constant currency basis. Paying users reached 16.49 million, compared with 15.25 million a year earlier, and average revenue per paying user increased, which management tied to a richer mix of higher-priced subscription plans and favorable foreign exchange rates. Deferred revenue of $668.0 million was up 11.6%. Cost of revenue increased more slowly than revenue, research and development rose modestly, sales and marketing climbed on brand and other marketing campaigns, and general and administrative expenses declined on lower allocated overhead, reduced headcount, and lower legal fees. The company announced a reduction of about 11% of its global workforce in January 2021. It repurchased 5.8 million shares for $181.0 million during the quarter and 29.9 million shares for $763.7 million over the nine months. In February 2021 it issued roughly $1.4 billion of convertible senior notes.
The release carried no guidance figures. Dropbox said it would provide forward-looking guidance in connection with the quarterly announcement on its conference call, webcast, and investor relations website, so any outlook for the next quarter or the full fiscal year sits outside the filing. Risks the company names include the uncertain duration and impact of COVID-19, the limited operating history of the Virtual First model and whether its cost savings materialize, foreign exchange swings, the ability to retain and upgrade paying users, the ability to convert registered users into paying accounts, and competition. More than 90% of revenue comes from self-serve channels, which puts the burden on in-product conversion rather than a large direct sales force. Share repurchase pace may vary with market conditions and the stock price, and real estate remains a moving part after impairment charges tied to Virtual First, with additional charges possible on certain European leases.
Forecast
No forward guidance in this quarter's filings.
Reported figures
GAAP, from SEC filings| Metric | Q3 FY2021 | Q2 FY2021 | QoQ | Q3 FY2020 | YoY |
|---|---|---|---|---|---|
| Revenue | $550.2M | $530.6M | +3.7% | $487.4M | +12.9% |
| Gross profit | $438.2M | $423.5M | +3.5% | $384.2M | +14.1% |
| Gross margin | 79.6% | 79.8% | -0.2 pp | 78.8% | +0.8 pp |
| Research & development | $187.3M | $185.5M | +1.0% | $183.3M | +2.2% |
| Sales & marketing | $115.7M | $100.8M | +14.8% | $105.8M | +9.4% |
| General & administrative | $57.9M | $52.8M | +9.7% | $65.1M | -11.1% |
| Total operating expenses | $360.9M | $339.1M | +6.4% | $354.2M | +1.9% |
| Operating income (loss) | $77.3M | $84.4M | -8.4% | $30.0M | +157.7% |
| Operating margin | 14.1% | 15.9% | -1.9 pp | 6.2% | +7.9 pp |
| Net income (loss) | $75.6M | $88.0M | -14.1% | $32.7M | +131.2% |
| Net margin | 13.7% | 16.6% | -2.8 pp | 6.7% | +7.0 pp |
| Diluted EPS | $0.19 | $0.22 | -$0.03 | $0.08 | +$0.11 |
Risks
Shift to Virtual First has uncertain long-term impact and creates real estate risk. The company recorded a $17.3 million impairment charge during the nine months ended September 30, 2021 related to continued adoption of Virtual First, may incur additional charges related to certain European leases, and may be unable to sublease unused office space on favorable terms or at all.
Content collaboration market is competitive and rapidly changing, with Microsoft, Amazon, Apple, Google, Box, Atlassian, and Slack among competitors. Competitors may offer lower-priced or free products or bundle broader offerings, which could force price cuts or higher marketing spend.
January 2021 reduction of approximately 11% of global workforce may cause increased attrition beyond the intended reduction, lower morale, and hurt recruiting and retention. The company incurred $14.3 million of severance, benefits, and other related expenses during the nine months ended September 30, 2021.
More than 90% of revenue is generated from self-serve channels, and the company lacks a significant outbound sales force, which was further reduced in the January 2021 workforce reduction. Limited experience selling directly to large organizations may impede future growth.
In February 2021 the company issued approximately $1.4 billion in aggregate principal amount of convertible senior notes. The revolving credit facility contains restrictive covenants including a consolidated leverage ratio incurrence covenant and minimum liquidity balance, and note conversions could dilute stockholders.
Multi-class common stock concentrates voting control. As of September 30, 2021, directors, executive officers, and holders of more than 5% of common stock and their affiliates held 78.1% of voting power, with Mr. Houston holding approximately 72.2%, limiting other stockholders' influence.
COVID-19 pandemic impact remains uncertain and may adversely affect financial results and operations through paying user growth, customer payment delays, foreign currency fluctuations, supply chain disruption, and labor shortages. MD&A states no material adverse impacts occurred during the three and nine months ended September 30, 2021, but effects may not be fully reflected until future periods.
The company states its revenue growth rate has declined in recent periods and may continue to slow due to higher market penetration, increased competition, slowing demand, and maturation of the business. MD&A reported revenue increased 12.9% for the three months ended September 30, 2021 and 13.0% for the nine months ended September 30, 2021.
SaaS KPIs
All quarters →Paying users
Free cash flow
Total ARR
Free cash flow margin
Non-GAAP operating margin
Non-GAAP gross margin
Summary, forecast, risks and KPIs are extracted from DROPBOX, INC.'s SEC filings for Q3 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.