Dropbox shares plummet after Q4 earnings; stock hit with multiple downgrades

Shares of Dropbox (NASDAQ:DBX) sunk over 19% on Friday after the cloud storage provider reported its fourth consecutive quarter of declining annual recurring revenue growth.

The company has been hit with multiple downgrades following its Q4 results. J.P. Morgan downgraded the stock from Overweight to Neutral, JMP downgraded from Market Outperform to Market Perform, BofA downgraded from Buy to Underperform, and Goldman Sachs downgraded from Neutral to Sell.

According to the analysts at BofA, "The DBX bull thesis has played out." "Operational headwinds including increased churn, top of funnel weakness, slower share repurchase than projected, and lower FCF guidance create a negative setup for shares in 2024."

The company's paying users at the end of Q4 declined sequentially to 18.12 million, compared to 18.17 million at the end of Q3.

"As related to paying users, our guidance contemplates a reduced level of paying user growth relative to 2023 and there may be some quarters, where paying user additions trend negative," noted finance chief Tim Regan during the earnings call.

Annual recurring revenue [ARR], a key sales metric, at the end of Q4 was $2.523 billion, up 0.3% year-over-year. Dropbox (DBX) had delivered ARR growth of 7.8%, 7.2% and 3.8% for Q1, Q2 and Q3, respectively.

The San Francisco, California-based company posted Q4 adjusted earnings per share of 50 cents on revenue of $635 million. Analysts were expecting the company to earn 48 cents per share on sales of $631.68 million.