Takeaway: Management answers on subscriber re-accel, monetization of Paper, enterprise mix, & P+L meaning from partnerships were all horrible

We said this morning that a pop on EPS would make this short even sweeter. As it turns out, shorting this EPS result would have been the right call, but perhaps not for the right reasons. As we’ve seen over DBX’s last 2 reports, net adds are slowing while the company beats estimates and drives pricing higher. The biggest yellow flag with the guide for us came via FCF, although nobody seemed to care about that on the call.

DBX | Bigger Questions Trump Revenue Beat & Raise - DBX LTV to CAC


  • No lift in GM% in 2019 after a 700bp increase in 2018; why? Street didn’t understand, and management didn’t want to explain, but the exit from AWS in late 2015 generated an immediate 30% OCF margin improvement; the relevant Gross Margin improvement took three years to fully flow through (i.e. 2H18). From here the GM % movement will be +/-.
  • Big jump in OPEX: spend more, bring in less…falling LTV/CAC
  • Net adds continue to be weak; Subscriber growth now only 15% and…falling.
  • Billing decel to 20%, Street looking for 19%
  • About HelloSign…have you heard what DOCU CEO said about it? (Full text below) He said that he and Drew live in the same building and often bump into each other in the hallway or elevator, and basically that the acquisition sort of is what it is and is mainly for SMB…and this kind of resonated with us. Is the best that Drew can do to go chase after a neighbor’s market cap thinking 'it's just e-signature, I can disrupt that'? There is nothing wrong with it…but as one of the few puzzle pieces of strategy it makes us wonder, is that it? is that the best DBX can do for cool, new, breakthrough tech?
  • CEO totally deflated the idea that Paper would be a revenue driver which seemed to surprise everyone, except for us… because after all, you can’t charge for something that’s worse than Google Docs, which is free.
  • When asked about how they can re-accelerate subscriber growth, they implied there could be no reacceleration as they are focusing conversion-to-paid on high LTV customers and not the ‘general public’. If we look at the slower net add rate, assume they are in fact getting higher quality, longer term customers, then retention should be rising. But the Chief Customer Officer  said retention rates are stable…maybe they didn’t understand the question?
  • When asked about the Zoom partnership and the impact on revenue or customer growth, the company was quick to walk backwards towards feature integration…and that’s about that. A great example of a Dropbox partnership that adds feature/function but not channel, customer, or revenue
  • When asked about Enterprise mix they boasted that Teams had grown 300k to 400k over the last year. Really? That’s it? The big push toward enterprise actually means mix % went from 2.75% to 3.15%?
  • Lastly, the CFO noted that HelloSign would be immaterial to revenue growth when he gave guidance, but later admitted that it adds 1 percentage point to growth. Frankly, that is “material” when it moves growth from 16-17% to 17-18%


  • Solid OCF margin at 33% puts rolling 4Q OCF margins at 31%, which is top end of the rolling range for the company
  • New storage tier technology is another example of Dropbox being an incredible technology company, constantly innovating around the area of storage by creating greater efficiency for lower cost (we need to delve deeper to understand what kind of opportunity can be unlocked from this new innovation)

Post call, Street FCF moves lower ($443m to $380m), and including capital leases puts it again below $300m. Even on the -10% drop in the aftermarket, the company is trading ~25x FCF ($380m, add back $75m one-time capex, subtract $100m for cap leases)…a not unfair rate for a company that is trapped…

Please call or e-mail with any questions.

DOCU CEO on the HelloSign acquisition by Dropbox:

Daniel D. Springer,  DocuSign, Inc. - President, CEO & Director "Yes. So we're excited about the partnership with Dropbox. Similar to my comments earlier around where the value of this signature is, I don't think storage of documents is the obvious place. That's why they went out and partnered with a bunch of players. I talked to Drew, and I happen to live in the same building a couple of blocks from here. So we're one floor apart and see each other with some frequency. And they still want to be focused with their large customers on DocuSign because they know that the large customers are familiar with DocuSign. And HelloSign is only, again, one of those players in sort of the SMB space. I don't know what's going to happen with that. I don't have a perspective that it will be anything particularly significant for us. And we don't see HelloSign as -- I think they were significant, but I don't think the fact that they're working with Dropbox will change that very much. So our stance is we're going to continue to partner with Dropbox. And we are -- our -- the way we look at it, we're an open platform. It's the same way Drew look at his business, an open platform. If we have customers that want to use Dropbox to store documents, and they want to build processes with DocuSign because where documents come in and out of Dropbox and they use them, we're here to support those customers, and there's no tongue in cheek in it. We're happy to have them use Dropbox if that's the storage solution they want to use."

Ami Joseph

Managing Director




Yosef Vaitsblit