Email backup provider Dropsuite has jammed the gears into reverse after a huge fall in paying users.

The stock collapsed 58 per cent to 4.1c when the market opened on Wednesday morning after the cloud software play reported a drop of 420,000 paying users at one client.

It’s a big reversal of fortune for shareholders after DropSuite went on a huge run mid-year.

The stock (ASX:DSE) climbed almost 500 per cent from 2.7c in May to a high of 16.2c in July on the back of higher customer numbers and cash receipts.

In July the stock jumped 40 per cent after it netted 100,000 new paid users over a three-week period thanks to an “extensive marketing campaign”.

Dropsuite had 750,000 paid users at the end of August — up from 189,000 in same period last year “driven by massive growth in email backup”.

But that number halved to 350,000 after a Latin America client “deactivated the backup service for an estimated 420,000 paid users … who were deemed as not actively utilising their email service”.

DropSuite (ASX:DSE) shares fell by half after a big drop in paid users from one client
DropSuite (ASX:DSE) shares fell by half after a big drop in paid users from one client

Dropsuite boss Charif Elansari said the drop in paid users “is definitely a short-term frustration and of course disappointing”.

But he said the the business was “geared to absorb these developments as we scale up”.

“The bulk of this user deactivation took place only recently, and while Dropsuite has cautioned on the potential for a higher churn, the scale and scope of this churn was much higher than expected,” the company said.

Annual recurring revenue was now estimated to be $4.6 million in November — down 44 per cent from September, though still up 49 per cent year-on-year.

Quarterly cash receipts came in at $1.1 million for the quarter — up from $1 million in the June quarter and $700,000 in March.

Quarterly cash-burn sat at $343,000 leaving $3.6 million in the kitty — and plans to spend $1.9 million this quarter.