The pressure is on for Dropbox and its 35-year-old billionaire cofounder Drew Houston to make a good first impression (DBX)

Dropbox IPO Drew Houston Arash Ferdowsi

Fresh off a successful IPO, Dropbox will report its first ever earnings on Thursday.
Wall Street is optimistic. Shares were up nearly 4% on Wednesday, a day ahead of its report.
Two analyst said they expect a "beat-and-raise" quarter from Dropbox. This means they think it will outperform Wall Street's expectations on earnings per share and revenue, and raise its guidance on both metrics for the upcoming quarters.

Wall Street has high hopes for Dropbox heading into its first quarter — and first ever — earnings report as a public company on Thursday.

Dropbox, now valued at $12.5 billion on the public markets, began trading on the Nasdaq at the end of March in what was widely considered a successful IPO.

Shares in the cloud computing storage company traded up nearly 4% on Wednesday, and analysts said they expect Dropbox to keep up that momentum while exceeding Wall Street's targets in several key growth areas.

"In an environment of increasingly heterogeneous IT environments, rising data volume, and growing emphasis on collaboration, the company remains positioned for continued strong fundamentals," KeyBanc analyst Rob Owens said in a note. "We expect results and guidance to exceed consensus."

Still, with Dropbox's shares up roughly 50% from its IPO price, there's a lot of pressure for the company to deliver.

Drew Houston Rishi Jaluria, an analyst with D.A. Davidson & Co., also expects what he called a "strong beat-and-raise quarter."

That's especially important for the company's debut quarter, when making a good impression on Wall Street and earning trust with analysts is critical.

As it is, Dropbox's revenue growth has been decelerating for the past year. And the consensus estimate for its Q1 revenue implies 24.5% year-on-year growth, down from the 28% clip in Q4. So delivering a top line that exceeds those targets could win Dropbox some early goodwill from investors.

It's also an important moment for Drew Houston, the 35-year old cofounder and CEO of the company and newly-minted billionaire. The company's press release announcing the upcoming earnings does not say whether Houston will be on the call, but it would be surprising if he weren't, given that he's become the face of the company and Wall Street is eager to get to know him.

While Houston has been an effective advocate and promoter for his company in the chummy speaking engagements of the startup world, he'll face a less forgiving crowd on Wall Street. With strong numbers, his job will be easier. But he'll still need to sell investors on both his company and his leadership.

There's at least one skeptic

Beyond Dropbox's revenue and earnings per share, Jaluria, the analyst at D.A. Davidson, said he's focusing on the company's paying user growth, average revenue per user, non-GAAP gross margin and free cash flow.

Many analysts see attracting paid users as Dropbox's core objective in the upcoming months as the money-losing company strives to become profitable while maintaining the freemium model that has made its service so popular with users.

Dropbox

Wall Street is looking for $0.02 non-GAAP earnings per share from the company on Thursday, and $308.7 million in GAAP revenue for the quarter. Analysts expect Dropbox to reach $1.33 billion in revenue by the end of fiscal 2018, up from the $1.1 billion in revenue it reported for 2017 in its S-1 filing.

Despite the excitement, at least one analyst following Dropbox remains a skeptic.

John DiFucci at Jefferies confirmed that he still agrees with the assessment he shared in an initiation report in April. DiFucci sees Dropbox as a wait-and-see company, with a valuation that accurately reflects its value. He was the only analyst out of seven who issued a "hold" instead of a "buy" rating for the stock.

Dropbox will report its first quarter earnings on Thursday after markets close.

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