Download now: How To Invest in the Coming Bitcoin Boom

Dropbox Prepares for its IPO

Written by Monica Savaglia
Posted March 13, 2018

It’s been a few years since we’ve seen a really big (and successful) tech initial public offering (IPO), and that might be coming to an end as data-sharing tech company Dropbox prepares for a March IPO.

I first heard about Dropbox about a decade ago as a place where I could upload and save images without having to worry about taking up space on my computer or digital camera.

I’ve always had an interest in photography, and I used to take a lot of photos on my digital camera. Usually I’d save them to my computer, but even that couldn’t handle the amount of photos I was taking.

So when I heard about Dropbox, I started using the service as a place to keep some of my older photos. It was one of the first cloud-sharing platforms I was ever introduced to.

As the years went on, it became a platform where I could not only upload my personal photos and share them with my family and friends, but also upload documents and share them with professors.

And when I got my first job out of college as an editor at an academic publisher, I used it as a resource for authors I worked with. They were able to upload their entire manuscript to Dropbox. It was easy. It was seamless. And, more importantly, it saved a lot of time.

I don’t know how many times I’ve heard, “I’ll send it through Dropbox,” or, “Do you have Dropbox?” throughout the past decade.

The company was founded in 2007 by MIT computer science students Drew Houston and Arash Ferdowsi with one goal in mind: making life a lot easier (and better) by giving people access to their most important information any time from any device

In the beginning, Dropbox’s business plan focused mainly on storing files. Then it realized most of its users found even more value in the ability to share and collaborate on files.

About the Business

The San Francisco-based company started its business off as a free service, but as the years progressed, Dropbox launched a paid service to keep up with the competition.

The free service is what users subscribe to at first until they run out of the limited storage. Then it’s easy for them to see the benefits of upgrading to the premium service.

Dropbox generates over 90% of its revenue from self-serve channels — users who purchase a subscription through its app or website. Worldwide, it has 11 million paying customers. That number could easily increase after the company goes public.

It has more than 500 million registered users in more than 180 countries. That’s 400 billion pieces of content being shared. The potential for more growth could easily be available for Dropbox. It’s just a matter of marketing and staying relevant.

In 2017, the company reported revenue of $1.1 billion, up 31% from 2016’s revenue of $844.8 million.

Dropbox has managed to decrease its net loss to $11.7 million in 2017 from $210.2 million in 2016. That's always good news in my book. 

While the company has yet to turn a yearly profit, this should not be too big of a surprise. Investment-heavy tech startups that are planning to go public don’t generally earn a yearly profit.

Growth is important to any business, but it’ll be especially important for Dropbox as it becomes a publicly traded company.

Dropbox will need to increase adoption and the number of users who are switching from free to premium services.

Not only that, but it will need to bring more incentive to customers who are already paying for its services.

It'll need to focus on encouraging customers to upgrade their premium service to the next tier of premium to keep business growing and, more importantly, to keep the money flowing in.

A major downfall for Dropbox is the companies it’s competing with. It competes with large tech firms such as Alphabet’s Google, Microsoft, Amazon, and its more direct rival Box.

Competition with already-established and larger companies could bring some hard times ahead for Dropbox.

Dropbox’s IPO

The company will be putting 36 million shares up for sale next Friday. It’s seeking to raise $612 million with its IPO, setting its IPO price in the range of $16 to $18 a share. As a private company, Dropbox was able to raise more than $600 million in funding.

As part of the IPO, Inc. will be buying $100 million worth of Dropbox stock.

Dropbox will make its market debut on Friday, March 23, backed by some big firms like Goldman Sachs, J.P. Morgan, Deutsche Bank Securities, Allen & Company, and Bank of America Merrill Lynch.

If its IPO goes as well as planned, the company would be valued at roughly $7.5 billion. Yes, that’s right: $7.5 billion.

With only 29 IPOs so far, it’s been a good year for the IPO market. According to advisory firm Renaissance Capital, the market is up 61% from last year. Obviously, the market is ready to see some of these long-awaited unicorns go public.

Dropbox’s IPO is going to be a test of whether the company is worth its valuation. It’s also going to be a test for more than 100 U.S. companies that are valued at more than $1 billion that are still private. If those companies see success from Dropbox's IPO, they could start to consider an IPO of their own.

With a little over week until going public, Dropbox is working diligently to convince would-be investors that its stock is worth the buy. Many are comparing the company’s stock to Facebook, which has continued to steadily increase throughout recent years.

Dropbox doesn’t want to be compared with Snap Inc., because that could be detrimental to its IPO. Snap’s stock is down 34% since its debut last year. No company wants to be compared to that.

Until next time,

Monica Savaglia

Monica Savaglia

Monica Savaglia is Wealth Daily’s IPO specialist. With passion and knowledge, she wants to open up the world of IPOs and their long-term potential to everyday investors. She does this through her newsletter IPO Authority, a one-stop resource for everything IPO. She also contributes regularly to the Wealth Daily e-letter. To learn more about Monica, click here.


Buffett's Envy: 50% Annual Returns, Guaranteed