Dropbox, Inc. Q3 FY2025 earnings call

Drew Houston noted the team executed well this quarter with constant currency revenue ahead of guidance driven by better retention. The company's two strategic priorities are scaling Dash and simplifying/strengthening Core FSS. For Dash: improved search latency and quality, added features like video transcription and multimodal capabilities via Mobius Labs acquisition, launched self-serve version in the U.S. at $19 per user per month with discounts for existing Dropbox customers, and integrated into the Dropbox app. For Core FSS: progress on retention and downsell, improved user experience with localization, import tools, unified checkout, and an IT admin storage management dashboard. DocSend had double-digit revenue growth.

In Q3 2025, total revenue was $634 million, a 70 basis point year-over-year decline. Constant currency revenue stood at $631 million, a 120 basis point year-over-year decrease. Excluding the 150 basis point headwind from FormSwift, constant currency revenue was slightly positive due to strength in individual SKUs. Total ARR was $2.536 billion, down 1.7% year-over-year and 1.5% on a constant currency basis. The number of paying users was 18.07 million, a sequential decline of ~64,000. Average revenue per paying user (ARPU) was $139.07, up sequentially. Gross margin was 81.4%, down 260 basis points year-over-year, and non-GAAP operating margin was 41.1%, up roughly 490 basis points from the year-ago period.

For Q4 2025, revenue is expected to be in the range of $626 million to $629 million (with a ~$3 million currency tailwind, constant currency revenue $623 million to $626 million) and non-GAAP operating margin is expected to be approximately 37%. For full year 2025, as-reported revenue guidance range is raised to $2.511 billion to $2.514 billion, constant currency revenue range to $2.508 billion to $2.511 billion. Non-GAAP operating margin is raised to ~40%, unlevered free cash flow is at or above $1 billion, CapEx guidance is lowered to $20 million to $25 million, and diluted weighted average shares outstanding outlook is adjusted.

Risks include macroeconomic environment impacting customer spending, competition in the AI and cloud space, and potential challenges with technical integrations and adoption of new products like Dash.

Q: Palak Chandak inquired about early feedback on Dash and if guidance includes Dash monetization.

A: Andrew Houston said early days but value props of Dash (search across apps, AI connected to context, stacks, protection) are resonating, Tim Regan attributed guidance raise to individual SKUs, FormSwift, DocSend, etc.

Q: Rishi Jaluria asked about M&A philosophy and proof points for Dash in the long term.

A: Andrew Houston discussed M&A lessons like buying category leadership, disciplined valuation, and Dash success measured by adoption, revenue growth, and closing the AI gap at work.

Q: Matthew Bullock asked about Dash sales feedback and self-serve vs managed sales.

A: Andrew Houston mentioned value props resonating, SMB advantage with no scaled competitors, and differences in enterprise vs SMB adoption dynamics.

Q: Jaiden Patel asked about end user behavior and consumer-linked cohorts.

A: Andrew Houston stated trends are stable, Dropbox is mission-critical for small businesses with relatively less cyclicality.

Q: Kincaid LaCorte asked about integrations and competitive landscape.

A: Andrew Houston talked about good integrations with major platforms, importance of interoperability to meet customer data value needs.

Q: Selina Zhang asked about pricing and packaging.

A: Andrew Houston discussed pricing optimization, success of Simple SKU, and Dash's pricing advantages due to technical infrastructure efficiencies.

Q: Seth Gilbert asked about Dash revenue contribution and buybacks.

A: Andrew Houston said focus is on adoption, Tim Regan mentioned commitment to the share repurchase program.