Dropbox Falls as COO Resignation Overshadows Earnings Beat

(Bloomberg) -- Dropbox Inc. shares fell 8 percent in extended trading after the company said Chief Operating Officer Dennis Woodside is stepping down in September, overshadowing second-quarter sales and earnings that topped analysts’ estimates.

A four-year veteran of the company, Woodside had been instrumental in Dropbox’s initial public offering in March. He will maintain his role until early September and stay on as an adviser through the end of 2018, the company said. Dropbox will promote two current vice presidents to report to Chief Executive Officer Drew Houston, but will not seek a new COO, the company said.

In the second quarter, revenue rose 27 percent to $339.2 million as more people paid to use the company’s online file-sharing service, Dropbox said in a statement Thursday. Analysts had projected $331 million, on average, according to data compiled by Bloomberg. Profit, excluding some costs, was 11 cents a share, beating the estimate of 7 cents.

The San Francisco-based software company offers storage for users to share and synchronize files, and generates revenue through paid subscriptions for additional space and business features. The baseline Dropbox Basic is free and offers 2 gigabytes of storage. The company competes with other cloud storage services including Box Inc. and Google Drive. Dropbox shares fell in July on reports Facebook Inc. was considering shifting its cloud storage to Google from Dropbox, but have since recovered and are up about 64 percent this year.

Dropbox introduced new subscription tiers last year, which could continue driving up average revenue per user as subscribers renew at higher prices. The new plans grandfather existing customers into older pricing, then give them the option to subscribe at the new, higher prices at renewal, or keep their lower prices with reduced functionality. At the end of the second quarter, renewals for about 50 percent of grandfathered subscriptions for Dropbox Advanced had been completed, and “a meaningful portion” of users elected to keep the higher-priced plans at the 30 percent price premium, Woodside said on a call with investors.

The company boosted its paid user base to 11.9 million in the second quarter, up from 9.9 million a year earlier. Average revenue per customer increased 5 percent to $116.66.

Dropbox said third-quarter revenue will be $350 million to $353 million, compared with analysts’ average estimate of $345.8 million. The company raised its full-year sales forecast to as much as $1.372 billion, from its previous top-end estimate of $1.355 billion.

The file-hosting platform added to its leadership team earlier this month by bringing on Adam Nash, previously president and chief executive officer of Wealthfront, as vice president of product, as well as Naman Khan, a Salesforce.com Inc. and Microsoft Corp. recruit, as vice president of product marketing and global campaigns.

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