Dropbox (DBX), which operates a cloud-based document sharing platform, is trading modestly lower today despite reporting solid Q1 results last night. Non-GAAP EPS rose 25% yr/yr to $0.10, which was a good bit better than had been expected. Revenue rose 21.9% yr/yr to $385.6 mln, above prior guidance for $379-382 mln.
Non-GAAP operating margin is a metric closely watched with DBX. It slipped a bit to 10.1% from 10.9% in the prior year period but was nicely above prior guidance for an operating margin of 7-8%. DBX has cautioned that Q1 of each year is generally a seasonally slower quarter for revenue and operating margin because there are fewer days in the quarter and due to the reset of payroll taxes and the payout of year-end bonuses.
In terms of guidance from the call, DBX said that it expects Q2 revenues of $399-401 mln and non-GAAP operating margin of 9-10%. Both metrics are generally in-line with market expectations. Full year revenue guidance ticked higher to $1.634-1.646 bln while non-GAAP operating margin guidance was bumped up to 11-12% from 10.5-11.5%.
In terms of new product features, DBX noted on the call that it has built a number of new capabilities, including allowing users to work with Google Docs, Sheets, and Slides from within Dropbox. Managing work scattered across multiple platforms is difficult and time consuming. DBX says that its new capabilities counter those difficulties by makign it easier for users to organize and manage their content.
A big topic on the call was DBX's recent acquisition of HelloSign, an eSignature and document workflow platform, which DBX acquired for $230 mln in cash, completing the transaction in early February. It sounds like it's similar to DocuSign (DOCU). This seems like a smart move in DBX's strategy to move beyond just document sharing. This gets DBX into document signing and creation. DBX says that it has been improving the product by adding custom rules to validate text that signers enter to improve data accuracy. In addition, DBX says that it has "built new API features to make HelloSign a more seamless experience inside Dropbox."
The stock's price has been mostly languishing since its IPO, and it's been mostly rangebound in recent months in the $20-25 area even as other tech stocks saw a huge run in 1Q19. The main concern with DBX is how well it is going to be able to covert free customers to paying customers. Once investors are confident in DBX's ability to do that, the stock could get on a nice uptrend. These Q1 results were a positive step forward but were not earth-shattering.