Dropbox delivers strong Q3 results - it’s now a “distributed team building for distributed teams”

Derek du Preez Profile picture for user ddpreez November 6, 2020
Dropbox CEO Andrew Houston said that the company’s shift to ‘Virtual First’ is helping guide product development.

Drew Houston, CEO, Dropbox speaks at Work in Progress 2019

Digital teamwork vendor Dropbox beat analyst expectations this week with some strong Q3 numbers that reflect the changing nature of work in the COVID-19 economy. The company also raised its full year guidance as it continues to win paying enterprise customers that are grappling with the shift to distributed teams. 

CEO Andrew Houston made a point of highlighting Dropbox's ‘Virtual First' approach to work during a call with analysts, stating that if Dropbox wants to lead the way in developing solutions for distributed digital teamwork, it needs to not just talk the talk, but also walk the walk. 

Commenting on the impact of the COVID-19 pandemic on Dropbox's business, Houston said: 

I'd like to quickly reflect on 2020 as we approach the end of the year. In many ways, this was a critical year for Dropbox. And when I spoke to all of you on our earnings call in February, neither I nor anyone else could have imagined how the world would be upended by the pandemic. 

2020 has certainly had its challenges. But we also believe that the shift to distributed work means that our opportunity has never been bigger. This year, our customers relied on us more than ever to help them with the transition to distributed work, and we were fortunate to have the building blocks in place to be resilient in the current environment.

The numbers

Before taking a look at Houston's comments in further detail, let's dive into the Q3 numbers released by Dropbox this week: 

  • Total revenue for the quarter was $487.4 million, an increase of 14% from the same period last year

  • Total ARR ended at $1.981 billion, an increase of $49.8 million quarter-over-quarter and an increase of 12% year-over-year

  • Paying users stand at 15.25 million, compared to 14 million in the same period last year. The average revenue per paying user also increased from $123.15 to $128.03 compared to the same period last year. 

  • Dropbox is raising its full year 2020 guidance range from $1.891bn to $1.901 billion to $1.907 billion to $1.909 billion. 

Houston also highlighted strong adoption across Dropbox's user base for new features that include Dropbox Passwords, Value and Backup, as well as strong adoption for the recently announced integration with HelloSign. 

Virtual First

Central to Dropbox's results this quarter was an insistence from Houston that the company's recent announcement to adopting a Virtual First approach to work would help guide the company's efforts in leading the way for distributed digital teamwork for customers. 

Earlier this month the company laid out its plans for how its workforce will operate in the future, where the ‘Virtual First' approach will mean remote working is the "primary experience" for all employees and the day-to-day default for individual work. 

However, Dropbox believes that in-person collaboration is still important and as such will be using its existing real estate or other flexible spaces to create what it is calling ‘Dropbox Studios'. These will be spaces for employees to come together and collaborate and will not be used for solo work. 

Employees are being given the choice to relocate outside of locations where Dropbox currently doesn't have offices and will be encouraged to design their own work schedules. 

Speaking on how this will help Dropbox as a company selling digital teamwork solutions, Houston said: 

Our product at its core helps enable distributed work. Our customers have been turning to Dropbox to work more flexibly since our founding in 2007. And so when we first shifted to remote work earlier this year after lockdown, our product helped us transition pretty seamlessly and helped many of our customers. It helped a publisher in London that was forced to migrate off their in-house servers, was able to get up and running on Dropbox in a week. And the Italian Red Cross relied on Dropbox to help coordinate their emergency response during the crisis. 

And these are just a few examples. As a result of COVID, we've seen increased adoption and usage this year across a variety of industries. And as virtually all knowledge work becomes digital, organizing all your team's content based workflows in one place has never been more important.

We believe this [Virtual First] approach gives our team increased flexibility in how they work and live. It allows us broader access to talent that was previously out of reach, and it has the potential to create efficiencies consistent with our commitments to profitable growth. But the most important reason we chose this approach is that it truly allows us to live out our mission. While we build products that help people work from anywhere, we know that all the tools people use at work today weren't truly built for distributed teams. We believe the world is permanently shifting in this direction, and now we have an opportunity to build even better products to address all the pain points we're experiencing. But we can only do that if we're on the leading edge ourselves. With Virtual First, we'll be a distributed team building for distributed teams. 

My take

Although Dropbox's stock dipped this week on release of its Q3 numbers, it's clear that it was a strong set of results and that the company is gaining traction with paying customers, which are responding well to its strategy and product set. That's not to say it's a clear win for the company in this market - there are a whole host of digital teamwork vendors out there investing rapidly and competing for attention. I believe the Virtual First agenda is a smart move by Dropbox, as it highlights that it has thought through what the future of work will look like and it can speak authentically with customers about the paint points they're experiencing. It's too soon to tell who will lead the way in this market, but Dropbox is certainly making good progress. 

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