Dropbox delivers solid quarter as CEO outlines plans for ‘responsible AI’

Despite warnings about tough macroeconomic conditions, content collaboration vendor Dropbox has delivered a solid Q2 2023, beating its guidance across all metrics. CEO Drew Houston told analysts this week that Dropbox would be releasing a series of AI products over the coming months, with a focus on responsible use, and the company’s share price was up in after hours trading. 

Houston said that Dropbox’s growth was being led by revenue performance in its FormSwift product, which was acquired by the company in 2022 and provides a library of form templates, but that the economic conditions were still impacting overall purchasing decisions. He said: 

However, we are still navigating a difficult macroenvironment that continues to impact our Teams customers and pressures growth in our DocSend and Sign businesses.

The key numbers from the quarter include: 

• Total revenue was $622.5 million, an increase of 8.7% from the same period last year. 

• Total ARR ended at $2.500 billion, an increase of 7.2% from the same period last year

• Paying users ended at 18.04 million, as compared to 17.37 million for the same period last year. Average revenue per paying user was $138.94, as compared to $133.34 for the same period last year

• GAAP net income was $43.2 million, as compared to $62.0 million for the same period last year due to expenses related to the reduction in workforce in the second quarter of 2023, such as severance, benefits and other related items.

• Non-GAAP net income was $174.0 million, as compared to $138.1 million for the same period last year.

AI investments

Houston took time during the financial analyst call to highlight that one of Dropbox’s key objectives over the coming months will be AI-powered product experiences, which he said will help customers organize their working lives. 

Since the release of OpenAI’s ChatGPT, Large Language Models (LLMs) have been fuelling fresh investment in the B2B software market. Vendors from all corners have been announcing their own advancements in LLMs, which have the potential to create efficiencies and new ways of interacting with enterprise tools. 

One of the key benefits of LLMs is their ability to take in huge amounts of data, summarize it and offer suggestions for future actions. Given Dropbox’s platform is the home to huge amounts of content data, it’s unsurprising that Houston and the leadership team see opportunity with the advancement of this technology. He said: 

Our company mission at Dropbox is to design a more enlightened way of working and I'm proud that we've accelerated our roadmap here with Dropbox Dash and our progress in AI, which I'll discuss in a minute.

While Dropbox has been investing in AI and machine learning technology for many years, we're all witnessing an unprecedented wave of innovation around generative AI and large language models. And seemingly overnight, we now live in a world where machines can read and write and talk to us and answer our questions in natural language.

The key message is that LLMs offer an ability for users to receive personalized content. Houston added: 

While there's a lot that these AI chatbots can do, there are a lot of questions these chatbot can't answer when it comes to questions about you or your content or your company, because they aren't personalized. 

And it's clear that customers need more personalized AI that can answer questions and provide insights on their own content, their company's content, and help them find what they need at work. And with hundreds of billions of pieces of content already stored on Dropbox, and as a service that is trusted by hundreds of millions of users, we see ourselves as uniquely positioned to build personalized AI at scale. 

Houston explained that Dropbox would be starting with Dash, its AI-powered universal search product that connects a company’s cloud tools, apps and content to a single search bar that searches everything. He said: 

With more of our work spread across 100 tabs in a browser, a common pain point for knowledge workers is that they spend too much time looking for their work and having to navigate between apps. Dash connects to major platforms and tools like Google Workspace, Microsoft Outlook, Asana, Notion, many others, and it allows users to quickly find everything from one place. And because Dash is powered by machine learning, it evolves and gets smarter the more you use it.

Dash is currently in closed beta and Houston said Dropbox has been rolling it out to more users over the summer. He added that early feedback has been positive and the company is seeing healthy activation rates and retention rates. 

Looking forward, Houston said: 

Along with Dropbox Dash, in Q2, we also advanced our core product roadmap with the launch of Dropbox AI. Now, Dropbox Professional and Dropbox Teams users can leverage Dropbox AI on their file previews page to summarize their content with a single click, whether it's a 100-page document or even a long video. Users can also ask the question for Dropbox AI to answer based on content within a file, and over time we plan to apply this functionality to folders and eventually the user's entire Dropbox.

We'll continue to evaluate the performance on this new AI-powered product experience, as well as other in-house capabilities we're building within Dropbox. And we're not doing this alone. Last month, we were featured as a global partner for Meta's Llama 2 launch. And we also announced Dropbox Ventures to support the next generation of AI start-ups.

However, he added that privacy and responsible AI are front of mind. Houston said: 

As we stay on the forefront of this new AI wave, continuing to use AI responsibly while protecting our customers' privacy is more important than ever. So in June, we published our AI principles, which guide our teams as we develop AI products and features in the years to come.

We delivered a solid quarter and introduced some exciting AI-powered product experiences to our customers. While we recognize the macroenvironment remains uncertain, we're focused on improving the product experience within core Dropbox and attaching more value across workflows in AI-driven capabilities. 

I remain focused on working closely with our product and engineering teams to strengthen our foundation while innovating for our next act.

My take

In recent quarters Dropbox has been taking a cautious, product-focused approach, which seems to be paying off. As noted above, the advancements in generative AI lend themselves well to content-driven platforms, which is key to what Dropbox does. Houston eyes gains in this area, so it will be interesting to see how this impacts performance over the coming months.