Dropbox Q2FY26 Results: Revenue up 0.9% YoY, operating margin hits 39.7%
- Revenue rose 0.9% YoY to $631.5 million, with total ARR at $2.566 billion
- Non-GAAP operating margin hit 39.7%, beating guidance of 38.5%
- Company announced a new $900 million share repurchase authorization
- Raised FY26 operating margin guidance to 40.0%-40.5% and FCF to $1.07 billion
*this image is generated using AI for illustrative purposes only.
Dropbox Inc reported second-quarter fiscal year 2026 revenue of $631.5 million, a 0.9% increase year over year. Non-GAAP operating margin reached 39.7%, exceeding the company's guidance of 38.5%.
The company added 96,000 paying users, marking the third consecutive quarter of sequential user growth. Total ARR stood at $2.566 billion, up 1% year over year excluding FormSwift. Unlevered free cash flow was $283.5 million, up from $276.4 million in the prior-year period.
Financial Performance
Revenue growth was driven by improved core FSS trends and positive Teams license growth. Excluding FormSwift, revenue grew 1.7% on a constant currency basis. Average revenue per paying user was $139.68, compared to $138.32 in the year-ago quarter.
| Metric | Q2FY26 | Q2FY25 | Change |
|---|---|---|---|
| Revenue | $631.5 million | $625.8 million* | +0.9% |
| Net Income (Non-GAAP) | $170 million | $197.7 million | -14.0% |
| Diluted EPS | $0.75 | $0.71 | +5.6% |
| Operating Margin | 39.7% | 41.5%* | -180 bps |
| Unlevered FCF | $283.5 million | $276.4 million | +2.6% |
Derived from context or prior year comparisons stated in transcript.
Capital Allocation and Guidance
The Board authorized a new $900 million share repurchase program, reflecting confidence in long-term strategy. In Q2, Dropbox repurchased approximately 12.6 million shares for $315 million. Cash and short-term investments ended the quarter at $1.114 billion.
Management raised full-year FY26 non-GAAP operating margin guidance by 50 basis points to 40.0% to 40.5%. Full-year revenue is now expected between $2.513 billion and $2.523 billion. Unlevered free cash flow guidance was increased to at least $1.070 billion.
What the Numbers Show
A divergence exists between top-line stability and bottom-line pressure. While revenue grew 0.9%, net income declined to $170 million from $197.7 million in the prior year. This drop is primarily attributed to higher interest expense related to the term loan facility, rather than operational weakness. Simultaneously, gross margin contracted by roughly 60 basis points to 81.6% due to compute costs associated with AI integration, yet operating margin outperformed guidance due to timing-related savings in brand spend and outside services.
How will the rising compute costs associated with AI integration impact Dropbox's gross margin trajectory in the second half of FY2026?
Can Dropbox sustain its sequential user growth momentum in Q3FY26 without eroding average revenue per paying user?
What is the expected timeline for the new $900 million share repurchase program to be fully executed, and how might it affect future liquidity?
Create Custom Screeners 
Access 200+ Pre-built Filters 
Use 50+ Readymade Screener 
