Editor’s note: A prior version of this article gave an incorrect ARPU figure. The article been corrected.

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Dropbox reported fourth quarter earnings Thursday after the closing bell.

Dropbox Inc. reported sales and revenue guidance that topped Wall Street expectations late Thursday, but issued guidance that disappointed investors.


DBX, +0.39%

 stock fell roughly 3% when the cloud-storage company released results just after the closing bell. But after Dropbox Chief Financial Officer Ajay Vashee issued the company’s outlook for 2019, shares fell nearly 10%.

The company reported fourth-quarter net losses of $9.5 million, which amounts to 2 cents a share, compared with losses of $37 million, or 19 cents a share, in the year-ago period. Adjusted for stock-based compensation, earnings were 10 cents a share, up from 3 cents a share in the year-ago period. Analysts polled by FactSet had estimated adjusted earnings of 8 cents a share.

Revenue grew 23% to $375.9 million and average revenue per user grew to $119. On the conference call late Thursday, executives said that Dropbox would not break out revenue from its recent HelloSign acquisition and that the roughly $20 million in 2018 revenue would not appear in the company’s top line in 2019.

Vashee said in the conference call that because of accounting rules, Dropbox would write down a “significant portion of HelloSign’s deferred revenue.”

See also: Dropbox stock falls 7% after earnings easily beat expectations, COO steps down

JMP Securities analyst Pat Walravens told MarketWatch over the phone Thursday that Dropbox stock was likely selling off in late trading because of the company’s margin guidance for 2019.

“So look, the long-term fundamental drivers seem to be very much intact,” Walravens said. “Those are: Having your users and average revenue per user go up. As long as those two things are happening, the company is going to do great. [The stock drop] is really about the margin guidance, which was disappointing. It’s just below what people were expecting.”

Walravens said the company is anticipating that the HelloSign acquisition will eat up about 100 basis points of margin. Also, because Dropbox is moving its offices in San Francisco, it will end up paying rent at both locations during some of 2019, which will result in a further 200-basis-point reduction in the company’s margins.

“Growth is solid,” said Walravens. “They’re doing what they have to do. There’s just some near-term headwinds.”

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Paying users rose to 12.7 million from 11 million in the year-earlier period.

In terms of guidance, for the first quarter, Dropbox said it expects sales of $379 million to $382 million, and for the full year it is estimating sales of $1.63 billion to $1.64 billion. Analysts had modelled first-quarter sales of $378 million and full-year 2019 revenue of $1.6 billion.

Vashee said the company expects non-generally accepted accounting principle gross margins to be slightly lower through the first two quarters, as it opens up a new data center to support its expansion. For the whole year, Dropbox expects a non-GAAP gross margins of 10.5% to 11.5%.

Prior to Thursday’s after-hours decline, Dropbox stock had risen 18% in the past three months, as the S&P 500 index

SPX, -0.35%

 rose 4.7%.

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