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Takeaway: Billings growth steps lower, revenue ok (below ours), and net adds continue to be weak

The good:

  • Revenue was ahead of Street but still represents a decel from 27% Y/Y in 2Q18 to 26% in 3Q18
  • ARPU was up ~9% Y/Y 
  • GM% improved q/q from 75% to 76%
  • OCF was slightly ahead of Street, and FCF was ~$2MM ahead 

The bad:

  • For all the glitz and public recognition of being a public company, plus higher S&M costs up 9% sequentially (vs revenue up 6%), and a lot of advertising dollars, they still only managed to drive 400k incremental conversions from free to paid and now stand at 12.3MM users. The hoped-for 300MM seems like a farther and farther distant dream, and more and more this becomes a model of TAKING PRICE ON A DECLINING USER BASE
  • Billings growth dropped from 28% Y/Y in 2Q18 to 22% in 3Q18 - YIKES!
  • Raw FCF puts the co now at 27x EV/LTM FCF but if you adjust FCF for capital leases (which is where DBX puts most of its capex), it is trading at ~42x EV/LTM FCF which isn't all that special

Net: seems like revenue fading, GM % capture improving, cash flow is fine but not enough to drive valuation based buying, and the most important metric - incremental paid users - is flat q/q and falling as a y/y % growth driver. 

Why is this good?! How much revenue from Paper in the Quarter?! How much revenue from Enterprise ELAs?!

More after the call...

Please call or e-mail with any questions.

Ami Joseph

Managing Director

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Yosef Vaitsblit

Analyst

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