Dropbox (Nasdaq: DBX) went public last year, but since then, it has had a tumultuous year. Despite beating analyst expectations on performance, its stock price has fallen. Today, the company is trading at nearly 5% lower than its list price. Analysts aren’t convinced that things will improve soon either.

Dropbox’s Financials

Dropbox’s recently reported second quarter revenues grew 18% to $401.5 million. Net loss grew to $ 21.4 million compared with a net loss of $4.1 million a year ago. On an adjusted basis, net income was $42 million or $0.10 per share. The market was looking for revenues of $401 million with an EPS of $0.09 for the quarter.

Among operating metrics, it reported 13.6 million subscribers at the end of June, ahead of the market’s expectations of 13.4 million subscribers. But the market was disappointed with the deceleration of Average Revenue per User (ARPU). For the quarter, ARPU grew to $120.48 from $116.66. But on a sequential basis, it declined from $121.4. This was the first time ever that Dropbox has witnessed a declining trend in ARPU, causing analysts to wonder how it will address the slowdown in the future. Analysts were also disappointed with the slowdown of billings and deferred revenue that came in at $410.4 million and $517.3 million, respectively, compared with the market’s expectations of billings of $420.3 million and deferred revenues of $527.7 million,

Dropbox expects to end the third quarter with revenues of $421-$424 million. It forecast the year’s revenues at $1.648-$1.654 billion. The market was looking for revenues of $1.64 billion for the year.

Dropbox’s Product Expansion

Dropbox has been expanding its product offerings through partnerships. It has entered into a strategic alliance with Atlassian to develop new integrations across the platforms of Dropbox and Atlassian. These integrations will be focused on building an environment that will allow teams to organize, coordinate, and run projects. Dropbox has been expanding its partner network. It already has several tie-ups with companies like Microsoft, Google, Salesforce, Adobe, and Zoom. These tie-ups have made it easier for its customers to work with files on the go.

Earlier this year, Dropbox announced the acquisition of e-signature startup HelloSign for an estimated $230 million. San Francisco-based HelloSign was founded in 2011 with the objective of building a paper-less office through its e-signature offering. Prior to the acquisition, HelloSign had raised $16 million. HelloSign was already a launch partner for Dropbox’s extensions product that had opened up the cloud-storage service to several third-party applications and tools. The acquisition will help Dropbox and HelloSign provide an enhanced experience to its users, and simplify workflows for its customers. Its annual revenue is estimated to be $20 million.

However, there is growing competition in the file storage space. File storage is becoming a highly commoditized service with companies like Microsoft and Google offering the service as part of their bigger portfolio. These players are able to cut prices for document storage that will make it difficult for companies like Dropbox to grow. Dropbox is looking to counter that problem by offering enterprise collaboration capabilities. Its recent tie-up with Atlassian is one such attempt. But analysts aren’t convinced about that either. Many believe that enterprise collaboration services will be led by companies like Microsoft that already have a big presence in the enterprise software market.

Dropbox’s stock is trading at $19.77 with a market capitalization of $8.2 billion. In March last year, it had listed by selling 26.8 million shares at $21 apiece. It had climbed to a 52-week high of $27.15 in July this year. It had fallen to a 52-week low of $17.20 in August this year. Prior to going public, Dropbox had raised $1.7 billion from venture investors and through long-term debts. Earlier last year, it had raised $777 million at a valuation of $7.1 billion. Back in 2014, it had peaked to a valuation of $10 billion.