Dropbox (DBX) posted better-than-expected Q3 profitability, prompting management to lift its 2025 outlook despite relatively flat revenue and a slight decline in its core paying user base, RBC Capital Markets said.

The company raised its full-year 2025 guidance, including revenue at the midpoint, increased its operating margin outlook by about 100 basis points to around 40%, and now expects unlevered free cash flow of $1 billion or more, up from at least $970 million, reflecting stronger-than-expected quarterly performance.

Management also highlighted continued progress with its AI-driven Dash platform, including faster search response times, new video transcription features and early engagement trends, with 60% of managed Dash weekly active users using the product at least two days a week, according to the report Thursday.

RBC said paying users edged down to about 18.1 million due to downsell activity in managed accounts and reduced investment in FormSwift, though management now expects a smaller full-year decline of roughly 250,000 subscribers, compared with 300,000 previously.

The firm raised its price target to $38 from $35 and maintained its outperform rating.

Shares of Dropbox were up nearly 8% in recent Friday trading.

Price: 30.93, Change: +2.26, Percent Change: +7.88