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
Yosef Vaitsblit
Analyst
