Shares of Dropbox Inc. were trending down in the after-hours trading session today after the company reported pedestrian growth and a decline in its average revenue per paying user.

The company did at least beat expectations with its fourth-quarter financial results. It reported earnings before certain costs such as stock compensation of 40 cents per share, just ahead of Wall Street’s target of a profit of 39 cents. Revenue for the period came to $598.8 million, up 6% from a year earlier and above the analyst estimate of $593.8 million.

Dropbox ended the quarter with a net profit of $328.3 million, improving on the $124.6 million profit it recorded in the same period last year. For the full year, Dropbox delivered a net profit of $553.2 million on total revenue of $2.32 billion.

Dropbox co-founder and Chief Executive Drew Houston (pictured) insisted that fiscal 2022 was a “solid year” for the company, which did well amidst a challenging macroeconomic environment. “We increased our profitability and free cash flow and continued to use M&A as an engine for growth, welcoming FormSwift to Dropbox,” he said.

Dropbox is an iconic name for many office workers, having established itself as a leading provider of cloud-based file storage and sharing tools. Its software is used by thousands of companies globally to organize, manage, share and collaborate on important business documents. The company acquired FormSwift in December, adding hundreds of customizable document templates to its existing suite of document management tools.

The acquisition of FormSwift was primarily designed to make Dropbox’s offerings more attractive, and that’s something it clearly needs to do given its laborious growth in recent quarters. While Dropbox’s annual recurring revenue grew by 11.2% ,to $2.514 billion at the end of the quarter, it also reported that its average revenue per paying user fell slightly, from $134.78 a year earlier to $134.53 at the end of the quarter. On the other hand, it did at least increase that customer base, ending the quarter with 17.77 million paying customers, up from 16.79 million last year.

Holger Mueller of Constellation Research Inc. said investors must have been disappointed with Dropbox’s performance, given that its growth slowed even further from what was already a very pedestrian pace.

“Dropbox slightly reduced its sales and marketing costs and kept its G&A expenses constant while growing R&D spend,” the analyst explained. “This would have led to lower operational costs of around $120 million had it not taken an impairment charge from real estate. However, it made up for that with a one-time tax benefit that almost doubled its income per share. So it’s a similar story for Dropbox and the pressure is on Drew Houston to find a way to grow faster in 2023. Maybe the FormSwift acquisition can help with that.”

Dropbox’s slow rate of growth has been a concern for investors for some time, and it’s likely that the lower revenue per customer was what sparked the after-hours selloff of Dropbox’s shares. The stock fell by almost 3% in the extended trading session following today’s report.

The company did offer some fairly encouraging guidance. For the first quarter of fiscal 2023, Dropbox said it sees revenue of between $600 million and $603 million, while for the full year it’s targeting a range of $2.475 billion to $2.49 billion. In contrast, Wall Street analysts are modeling first-quarter revenue of just $590 million and full-year sales of $2.44 billion.

Photo: WSJ Conference and Meeting Photos/Flickr