Dropbox to debut IPO more than $3 Billion off from peak valuation
As you may recall, Dropbox previously announced its plans for an IPO earlier in February. Prior to going public, companies are required to disclose an S-1 filing that contains, among a few other metrics, the selling price of the stock. The S-1 reveals that Dropbox will be offering 36,000,000 shares for $16-18 per share and it will be listed under the symbol "DBX" on the Nasdaq stock exchange. Dropbox has not specified a date for the listing yet.
At these prices Dropbox looks to be valued around $6.5-7.5 billion dollars, a far cry from the $10+ billion it was valued at in 2014 during an initial round of private equity funding. There seems to be concern that Dropbox is not adding premium paying customers at a fast enough rate. There is also some concern found in the number of competitors starting to take interest at Dropbox's core market, consumer cloud storage. The company lists Amazon (NASDAQ:AMZN), Apple (NASDAQ:AAPL), Google (NASDAQ:GOOG), and Microsoft (NASDAQ:MSFT) as its primary competitors but interestingly enough, another cloud storage competitor - Box, Inc (NASDAQ:BOX) was left completely out of its recent statements.
Dropbox IPO - the next Silicon Valley success story?
Dropbox is the next in a long line of sweetheart tech companies to rise from private funding to a massive IPO after just a few years of rapid growth. This will be the largest tech company IPO since last year saw Snapchat owner, Snap Inc (NASDAQ:SNAP) go public. As you may recall, optimism was high on Snapchat, based primarily on its very fast user growth and capture rate among millennials. While SNAP trading prices spiked 40% within the first few weeks of trading, it quickly sunk and stagnated below the IPO for the rest of 2017 based on concerns of profitability and user growth. The same two concerns are driving cautious traders to have a second or third look at this Dropbox IPO.
Perhaps more relevant to the discussion would be the Box IPO last January 2015 that saw the company go public among strong optimism for cloud storage companies. Box briefly commanded a $23/share price before plummeting to less than half that in the following 12 months. Over 2017 it has slowly crept back up, although its worth stating that the tech market as a whole did very well in 2017 and Box did not outpace the industry. Box recently suffered it worst ever trading day in February after they guided down for Q2 2018, citing slowing customer growth and a pivot to more diversified product portfolio.
While Box targets businesses and business storage products, Dropbox has traditionally been focused on consumers. However that will soon change. The Dropbox CEO and co-founder, Drew Houston stated in the S-1 filing, "Our market opportunity has grown as we've expanded from keeping files in sync to keeping teams in sync,".
Dropbox - Questions soon to be answered
The problem with many IPOs is that the information that investors have to work with is very limited. The S-1 filing shows yearly revenue and profits but not much more. Details only come with a company's first earnings statement after their first quarter of business. Dropbox increased revenue in 2017 by 31% to a total of $1.1 billion, with a loss in that same year of about $110 million. Dropbox has yet to turn a profit and has lost in the neighborhood of $1 billion thus far. This may sound bad but keep in mind its losses in 2016 were over $200 million so it is at least showing some improvement. Questions surround the company as its seeks to prove its business model is sustainable while at the same time diversifying into commercial markets. We will be watching this IPO with great interest.