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(Reuters) — File sharing and storage company Dropbox forecast a drop in current-quarter operating margins from a year earlier, sending its shares down nearly 11 percent in extended trading.

The weak margin outlook overshadowed a better-than-expected quarterly profit and revenue, and current quarter revenue forecast that came in above estimates.

“Margin guidance reflects conservatism,” DA Davidson analyst Rishi Jaluria said.

Some investors might be picking on the net additions of 400,000 paying customers, which was above consensus but fewer than last year, Jaluria said. Dropbox added 580,000 paying customers in the year-ago quarter.


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Shares of the San Francisco-based company, which rallied more than 25 percent so far this year, were down 10.5 percent at $22.90 in extended trading.

Dropbox forecast first quarter adjusted operating margins between 7 percent and 8 percent, compared to 10.9 percent last year.

The company, which competes with Alphabet’s Google, Microsoft, as well as Box, forecast current-quarter revenue between $379 million and $382 million. Analysts were expecting $377 million.

Dropbox said it had 12.7 million subscribers as of Dec. 31, beating analysts’ average estimate of 12.54 million, according to FactSet.

The company reported average revenue of $119.61 per user, beating estimates of $118.8, according to IBES data from Refinitiv.

Started as a free service to share and store photos, music and other large files, Dropbox now offers a range of enterprise software services and is betting on international expansion for user growth.

Last month, the company said it would buy electronic signature company HelloSign for $230 million in cash, aiming to expand its portfolio of workflow-related products.

Quarterly loss narrowed to $9.5 million in Dropbox’s fourth financial report as a publicly traded company, from $37.7 million a year earlier. The company is yet to turn a profit, which is common for startups that invest heavily in growth.

Excluding items, the company earned 10 cents per share, beating estimates of 8 cents.

Total revenue rose 23 percent to $375.9 million, above estimates of $370 million.

(Reporting by Munsif Vengattil in Bengaluru; Editing by Shinjini Ganguli)

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