By his own admission, Dropbox co-founder and CEO Drew Houston has spent the past eight weeks or so of peak COVID-19 quarantine life more fully embracing the art of running and catching up on Netflix.
Well that and overseeing a nearly $10 billion market cap company that similar to other work-from-home tech outfits such as Slack and Zoom is experiencing a transformational moment in their relatively short histories. The importance of the time is not lost on Houston — who co-founded Dropbox in 2007 with Arash Ferdowsi —as he is pushing his team to develop new tools for users that cater even more to a future of working from home.
It’s a world where we will need greater insight into what co-workers are thinking, feeling and doing since we won’t be in the office (at all or not that much). This is the void the likes of Dropbox, Zoom, Slack and others will look to fill in an effort to get us all working collaboratively and efficiently.
“And so what we're thinking about is in our products, given that you lose that human connection, how do you recreate the experience of being together in the app? How do you make it so that you can see what's been going on on your team in a much more organized and focused way? Because a lot of the messaging tools are great. But if you leave your computer for a day and come back, you have to page through all these chats, transcripts and emails and try to piece together what's going on. So what if that were easier? So that's a lot of what we're focused on. From a product standpoint, how do we pull all this together and organize your work and help you focus,” Houston explains to Yahoo Finance in an interview.
Dropbox has already seen an uptick in business as a byproduct of the shift to working from home during the health crisis.
Trial subscriptions to Dropbox’s business and individual services have increased 40% and 25%, respectively, since mid-March. Active users for the company’s new desktop app have surged 60%. Heading into April, Dropbox saw a 20-fold spike in the use of its integration with video calling platform Zoom.
Paying users in the first quarter rose 2.1% sequentially to 14.6 million, ahead of Wall Street forecasts for 14.57 million. Average revenue per user increased to $126.30 from $121.04 a year ago. Non-GAAP operating margins improved to 16.1% from 10.1% last year.
‘Healthy balance of growth and profitability’
The solid start to the year brings Dropbox incrementally closer to the aggressive profit margin forecasts it put out in February. The company said at the time it expects operating margins to reach 28% to 30% by 2024, up from a prior forecast of 20% to 22%.
Worth noting is that those targets came prior to the COVID-19 pandemic that has businesses globally rethinking how they operate and signing up to different services from a Dropbox. Houston won’t say whether the targets— which surprised many on the Street at the time — are now conservative in the wake of COVID-19.
“Well, we've always been focused on delivering a healthy balance of growth and profitability. And when we felt that we had an opportunity to update our long-term model to reflect the inherent efficiency in the business. And then with given COVID we're heading into a pretty unpredictable background environment. So you know, we'll be watching everything closely,” Houston says.
Only time will tell. But Wall Street stays invested in the Dropbox story — 71% of the sell-side analysts who cover the company rate the stock a Buy, according to Bloomberg data. The average 12-month price target by the analyst community is $26, suggesting at least 24% upside from current levels.