File-sharing company Dropbox Inc. delivered fourth-quarter earnings and revenue that topped Wall Street’s estimates, but its revenue growth was painfully slow and guidance for the current quarter came up light, sending investors scurrying away in after-hours trading.

The company reported earnings before certain costs such as stock compensation of 73 cents per share, beating the Street’s target of 62 cents by a healthy margin. Revenue for the period inched up just 1% from a year earlier, to $643.6 million, slightly higher than the analyst consensus estimate of $639.1 million.

Despite the ever-so-slight increase in revenue, Dropbox reported a narrower profit margin, with net income of just $102.8 million in the quarter, down from $227.3 million in the year-ago period.

Dropbox is an iconic name among office workers, as the company has established itself as one of the leading providers of cloud-based file storage and sharing tools. Its software is used by thousands of companies across the world to organize, manage, share and collaborate on business documents.

Yet despite this lofty status, Dropbox has struggled to find ways to grow in the last few years, with its growth slowing to pedestrian-like levels. In October, Dropbox Chief Executive Drew Houston (pictured) announced a radical plan to try to turn the company around, saying that one of the problems he has identified is that the company’s core file sharing business has “matured” to the point that it’s going to be hard to drive any more significant growth.

As part of that plan, Houston said, the company will let go of 528 employees, equating to around 20% of its total workforce.

In addition, the plan calls for the company to double down on its artificial intelligence tool Dash, which is essentially an AI assistant that allows users to search for files and insights within them using their natural voice. Among other things, it can summarize the contents of customer’s documents, and also create security and access controls.

Houston also cited a need to streamline the company’s business operations, saying that its organizational structure had become “overly complex,” with an “excess layer of management” that’s slowing down innovation.

In an update today, Houston said the company has made a lot of progress in bringing its Dash for Business product to market, while restructuring the core file sharing business to become more efficient.

“Looking ahead to 2025, we’ll continue our strategy of scaling Dash and file sharing services to deliver even greater value to our customers,” he said. “While still early, the positive feedback from our Dash users has been encouraging, validating the need for practical AI-powered tools that solve real customer pain points.”

Despite Houston’s reassurances, it’s clear from Dropbox’s numbers that there’s still a lot of work to be done. The company’s annual recurring revenue rose just 2% from a year earlier, to $2.574 billion. And though the number of paying customers rose to 18.22 million, up from 18.12 million a year ago, the company admitted it had lost 15,000 in the last three months.

Holger Mueller of Constellation Research Inc. pointed out that Dropbox’s pedestrian-level growth was so slow that it could not even keep pace with inflation. “In real terms, that means the company is backpedaling,” he said.

The analyst noted that investors will be sorely disappointed, because Dropbox has all the right conditions to grow much faster, with the rise of digitization and the increasingly digital future of work becoming prevalent in almost every business these days. The challenge for Dropbox’s executive team is to try and work out what the problem is. Mueller said possible factors might include shortcomings in terms of its research and development, or alternatively the failure of its sales and marketing teams to reach the right customers, or a combination of both.

“Drew Houston and his team have at least seen the writing on the wall, hence the decision to reduce staff by 20%, but the numbers have not improved,” the analyst continued. “Although the full-year picture looks slightly better, that was due to success in the early quarters, but recent months have not looked good. All eyes will be on the AI offering Dash and whether or not it can help return Dropbox to growth.”

Investors will need some patience, though, as Dropbox’s conservative guidance suggests that any turnaround is going to take a while. For the first quarter of fiscal 2025, the company is looking at revenue of between $618 million and $621 million, well off the Street’s target of $630.4 million.

Investors did not like what they saw, and Dropbox’s stock fell more than 7% after-hours, adding to a drop of 2% during the regular trading session. Even so, Dropbox’s stock remains up 6% in the year to date and has gained more than 31% in the last 12 months.

Photo: Marco Verch/Flickr