Dropbox to Report Q1 Earnings: To Buy or Not to Buy the Stock?

Dropbox DBX is scheduled to release first-quarter 2025 results on May 8.

DBX expects first-quarter 2025 revenues between $618 million and $621 million. The Zacks Consensus Estimate for first-quarter revenues is pegged at $619.06 million, indicating a year-over-year decline of 1.94%.

The consensus mark for earnings is pegged at 62 cents per share and remains unchanged over the past 30 days. The figure indicates a 6.9% increase from the year-ago quarter’s reported figure. 

DBX’s earnings beat the Zacks Consensus Estimate in each of the trailing four quarters, the earnings surprise being 16.72%, on average. (Find the latest EPS estimates and surprises on Zacks Earnings Calendar.)

Dropbox, Inc. Price and EPS Surprise

Dropbox, Inc. price-eps-surprise | Dropbox, Inc. Quote

Let us see how things have shaped up for the upcoming announcement.

Key Factors to Consider for DBX’s Q1 Earnings

Dropbox’s first-quarter 2025 performance is likely to have reflected the impact of a strategic shift in its FormSwift business. The decision to retain ownership while eliminating marketing investments and reducing headcount is expected to contribute to operating margin expansion. The company has guided for a strong non-GAAP operating margin of approximately 38.5% for the quarter.

Dropbox continues to invest in Dash, its AI-powered universal search tool, which is positioned as a long-term growth vector. Investments in enhancing Dash’s search, content governance, and SaaS integration features are expected to support product differentiation and future monetization opportunities. These enhancements are expected to have contributed positively to the company's performance in the first quarter.

In the core FSS business, Dropbox is working to boost retention and user engagement by streamlining key workflows and simplifying its pricing structure. The U.S. rollout of Dropbox Simple, a lower-priced plan targeting mobile-first users, aims to attract new customers while minimizing churn. 

Additionally, enhancements to the Teams product experience are expected to support customer stickiness and create a stronger foundation for introducing Dash to existing FSS users. Progress in these areas is expected to have continued in the first quarter of 2025.

However, the company expects a 1.5% year-over-year reduction in its paying user base for 2025, with roughly half of the full-year decline expected in the to-be-reported quarter. This decline is attributed primarily to reduced investment in FormSwift and a smaller outbound sales team. These factors are expected to negatively affect the paying user count, resulting in a modest sequential drop in the overall paying user base. 

What Our Model Says

Per the Zacks model, the combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. But that is not the exact case here.

DBX currently has an Earnings ESP of 0.00% and a Zacks Rank #3. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.

DBX Stock: Should You Buy or Hold?

Dropbox's first-quarter 2025 results are expected to reflect strong margin performance, aided by strategic cost reductions and targeted product investments, particularly in Dash and core FSS enhancements.

However, anticipated declines in the paying user base, driven by reduced FormSwift investment and a smaller outbound sales force, may weigh on near-term growth, making the stock a cautious hold for investors.

Stocks to Consider

Here are some companies worth considering, as our model shows that these have the right combination of elements to beat on earnings in their upcoming releases:

StoneCo STNE has an Earnings ESP of +13.79% and sports a Zacks Rank of 1 at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

StoneCo shares have appreciated 67.1% year to date. STNE is set to report its first-quarter 2025 results on May 8.

Baidu BIDU currently has an Earnings ESP of +8.67% and a Zacks Rank #3.

Baidu shares have gained 7.7% year to date. BIDU is slated to report its first-quarter 2025 results on May 21.

Affirm AFRM presently has an Earnings ESP of +63.27% and sports a Zacks Rank #1. 

Affirm shares have plunged 14.6% year to date. AFRM is scheduled to report its fourth-quarter fiscal 2025 results on May 8.

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This article originally published on Zacks Investment Research (zacks.com).

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