Dropbox takes $400m hit after move to sublease office space
The "one-off" charge makes for disappointing Q4 results in an otherwise strong year
Cloud storage firm Dropbox has reported a 'one-off' loss of $398.2 million in its fourth-quarter report, due to its decision to sublease most of its office space as part of a remote working strategy.
The company announced in October that it would be shifting all of its employees to permanent remote work, with the company only using a small portion of its office space for occasional in-person collaboration. As a result, Dropbox then moved to sublease the rest of its space to the market.
The cloud firm, which has leases in San Francisco, Seattle, Austin, and Ireland, noted in its Q4 results that it had incurred impairment charges of $398.2 million after an assessment of its current real estate was downgraded.
"We reassessed our real estate asset groups and estimated the fair value of the office space to be subleased using current market conditions," the firm noted in its report. "Where the carrying value of the individual asset groups exceeded their fair value, an impairment charge was recognised for the difference. As a result, we recorded total impairment charges of $398.2 million in the fourth quarter of 2020 for right-of-use and other lease-related assets."
Although this is regarded as a 'one-off' loss, it stands as a significant slump for a company that would have otherwise recorded a strong 2020 performance. In Q1 the firm recorded a profit for the first time since it debuted on the stock market in 2018. With the spread of COVID and the swift change to remote working, the company reported further gains in Q2 and Q3, the latter of which saw net incomes of $32.7 million, almost double the figure reported in the same period a year before ($17.2m).
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Dropbox notably decided not to implement the sort of 'hybrid' work strategy that has become popular throughout the industry, where employees can choose to work from home or in the office. The company has maintained that hybrid work arrangements could create two different employee experiences that could ultimately create "barriers to inclusion" and career inequalities.
Instead, it's ushering in a 'Virtual First' strategy where remote is now the "primary" setup for all of its employees and the day-to-day default for individual work, with the remaining office space being used for occasional collaborative work.
The firm is also planning to spread further afield with on-demand, collaborative spaces touted for other regions, although these are yet to be announced.
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