Dropbox Earnings Impress

If the U.S.-China trade tensions did not exist, then Dropbox (NASDAQ:DBX) would have held post-earnings gains. Still, the macro headwinds could keep the stock underperforming despite better fundamentals. What made Dropbox’s results so impressive?

Dropbox reported non-GAAP EPS of $0.10 as revenue rose 21.9% to $385.6 million. With three consecutive results beating consensus, the stock is still stuck in the sub-$24 range. Operating margin (non-GAAP) improved in the quarter, helped by strength of its global collaboration platform and discipline in operations.

Product enhancements

Dropbox added new Google Cloud Next capabilities that lets users work on Google Docs, Sheets, and Slides from within Dropbox. The convenience factor will increase moat the collaboration sharing company has over competitors like Box (NYSE:BOX), Microsoft OneDrive (NASDAQ:MSFT) or Apple (NASDAQ:AAPL) iCloud.

HelloSign, which adds e-signing features and functionality through an API to embed electronic signatures, widens Dropbox’s appeal. Investors could instead buy Adobe (NASDAQ:ADBE) or Docusign (NASDAQ:DOCU) to get exposure to such markets. But holding Dropbox is a less expensive proposition for value investors seeking growth.

Monetization of Dropbox Paper continues to grow. The company benefited from a higher conversion and retention of team subscribers.

Dropbox R&D expenses of $117 million is a 28% increase from last year. Higher headcount and new product development and testing are two costs that will support long-term growth levels. While the 10% operating margin is close to last year’s levels, the added features of HelloSign, for example, will drive long-term profits higher.