Dropbox NASDAQ: DBX reported second-quarter 2026 revenue growth and raised its full-year profitability and free-cash-flow outlook, as executives said continued improvements in its core file-sync-and-share business are supporting a return to sustainable growth.
Revenue rose 0.9% year over year to $631.5 million in the second quarter. Excluding FormSwift, revenue increased 1.7%, or 0.1% on a constant-currency basis. Total annual recurring revenue reached $2.566 billion, up 1% from a year earlier. Excluding FormSwift, ARR grew 1.7% year over year.
The company ended the quarter with 18.19 million paying users, adding approximately 96,000 users sequentially. It was Dropbox's third consecutive quarter of paying-user growth, with management citing strength in its Dropbox Simple offering and positive license growth among Teams customers.
Leadership Transition and Core Business Focus
Co-Founder and Co-CEO Drew Houston addressed the leadership transition announced in May. Houston and Ashraf Alkarmi are currently serving as co-CEOs, after which Houston will become executive chairman and Alkarmi will become sole CEO.
Houston said Alkarmi made “a series of difficult calls” after taking over the company’s core business and that the business has strengthened each quarter since. He said Dropbox’s next phase will center on execution and converting its progress into “consistent, durable growth.”
Alkarmi said the company has spent the past 18 months strengthening leadership, improving execution and focusing on conversion, onboarding, activation, retention, pricing and packaging. He said those efforts have helped turn the Core business from one that had been slowing for years into one demonstrating sustainable growth.
“We’re still early in the journey,” Alkarmi said, adding that a few quarters do not define success. Still, he said the company is seeing results from investments in the fundamentals across both individual and team customers.
AI Strategy Centers on Content Platform
Management framed Dropbox’s AI strategy around its existing content platform, which supports storage, synchronization, security, search, content processing, governance, permissions and version history. Alkarmi said trusted content and the infrastructure that governs it may become more valuable as AI use expands.
The company’s strategy includes consolidating services onto a common platform, embedding Dash intelligence natively into Dropbox and developing deeper workflows in markets where it believes it has an advantage. Dropbox has launched integrations with Claude and ChatGPT, and Alkarmi said more than 150,000 users have connected to those integrations despite limited dedicated investment.
Alkarmi said users are discovering the integrations organically to find and repurpose content, later storing work back in Dropbox. He said engagement and retention metrics from the integrations have been encouraging, though the company did not provide specific figures.
Dropbox is transitioning the rollout of what it previously called Dash and Dropbox into a next-generation “smart FSS” experience being tested with a select group of customers. Management said the transition does not alter its rollout schedule, and it remains on track to significantly expand access across its user base during the remainder of 2026.
The company also identified video and media review tool Replay as an example of a deeper workflow opportunity and said it is validating adjacent areas including digital asset management and AI-powered workflows.
Margins, Cash Flow and Capital Returns
Second-quarter non-GAAP gross margin was 81.6%, down about 60 basis points from the prior-year period. Chief Financial Officer Ross Tennenbaum attributed the decline primarily to compute costs associated with expanding AI capabilities to the Teams customer base.
Non-GAAP operating margin was 39.7%, above the company’s 38.5% guidance but down roughly 180 basis points year over year. Tennenbaum said the year-over-year decline reflected AI-related gross-margin pressure and increased marketing investment following targeted reductions in performance marketing during the year-earlier period.
Non-GAAP net income totaled $170 million, compared with $197.7 million a year earlier, primarily due to higher interest expense related to the company’s term loan facility. Diluted earnings per share were $0.75, compared with $0.71 in the prior-year quarter, aided by a lower diluted share count.
Cash flow from operations was $238.5 million, down from $260.5 million a year earlier, while unlevered free cash flow rose to $283.5 million from $276.4 million. Unlevered free cash flow per share increased 25% year over year to $1.25.
- Cash and short-term investments at quarter-end were $1.114 billion.
- Dropbox completed a new, undrawn $400 million revolving credit facility.
- The company announced a new $900 million share-repurchase authorization.
- During the quarter, Dropbox repurchased about 12.6 million shares for approximately $315 million.
- Approximately $1.385 billion remained under its existing repurchase authorization at the end of the quarter.
Outlook Raised for Full-Year Profitability and Free Cash Flow
For the third quarter, Dropbox expects revenue of $627 million to $630 million. Excluding FormSwift, the midpoint implies roughly flat year-over-year growth. The company expects a currency tailwind of about $6 million and forecast non-GAAP operating margin of approximately 38.5%.
For full-year 2026, Dropbox raised its total revenue outlook to $2.513 billion to $2.523 billion, an increase of $13.5 million at the midpoint. Excluding FormSwift, the midpoint implies approximately 80 basis points of year-over-year growth. The company expects a currency tailwind of roughly $31 million for the year.
Dropbox raised its full-year non-GAAP operating-margin outlook by 50 basis points to 40.0% to 40.5% and increased expected unlevered free cash flow to at least $1.070 billion. It expects gross margin of approximately 81.5%.
Tennenbaum said Dropbox expects positive paying-user growth for the full year, while average revenue per paying user is expected to decline modestly on a sequential basis through the rest of 2026. He said ARPU will be affected by the mix of monthly plans, the rollout of Dropbox Simple and the eventual rolling off of FormSwift, partially offset by foreign-exchange effects.
Management said AI-related costs may pressure gross margin as product rollout and adoption increase, but infrastructure efficiencies are expected to offset part of that pressure. The company said it is also seeking efficiencies in research and development and rebalancing its go-to-market organization toward priority markets, customer segments and sales routes.
About Dropbox (NASDAQ:DBX)
Dropbox, Inc NASDAQ: DBX is a leading provider of cloud-based file storage, collaboration, and productivity tools. Founded in 2007 and headquartered in San Francisco, California, the company offers a suite of services designed to help individuals and organizations securely store, share, and manage digital content. Dropbox has grown from a simple file-syncing application into an integrated collaboration platform used by millions of customers around the globe.
At its core, Dropbox provides cloud storage plans tailored for consumers and businesses.
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