Last year saw one of the lowest periods in the stock market regarding IPOs as investors and companies remained skeptical on the status of the global economies. Illustratively, last year there were 169 IPOs in the U.S., a 39% drop from the number of companies that went public in 2014 and a 65% drop in monetary terms. These figures were the least in a calendar year since 2009 when the market was at the center of a global financial crisis.
While the potential U.S. rate hike did spike some optimism for a better future, the delay in making the call caused anxiety ultimately leading to increased volatility in the market.
This year has not been any different even following the rate hike in December last year. Very few companies have taken the opportunity to source for capital funding in the stock market via an IPO. Among the companies expected to go public in the near future are the vacations and accommodations market disruptor Airbnb, social media platforms Snapchat and Pinterest, and cloud storage and document sharing service Dropbox.
While Snapchat and Pinterest can be forgiven for delaying their IPOs given what Twitter (TWTR, Financial) has experienced since going public two years ago, Dropbox has been tipped to follow the example of its close rival Box (BOX, Financial), which appears to have fared decently since the start of the year after a disappointing 2015.
On the other hand, Airbnb is reportedly pursuing private funding options before making the call for a public offering.
So what is taking Dropbox so long, and is it ready for an IPO?
Dropbox is one of the most competitive players in the cloud storage market. However, due to the low barriers to entry in the market, the company needs to continue improving its services while maintaining competitive rates for subscribers.
Dropbox broke the 500 million user base in the first quarter and looks set to continue growing regardless of the rivalry offered by cloud storage giants like Apple (AAPL, Financial), Microsoft (MSFT, Financial), Amazon (AMZN, Financial), and Alphabet’s (GOOG, Financial) (GOOGL, Financial) Google among others.
There are also other promising prospects like MyPCBackup that could offer a serious challenge to Dropbox’s cloud storage business in the near future especially given its competitive subscription packages.
MyPCBackup’s premium plan offers subscribers a monthly subscription option of EUR 9.94 or an annual rate of EUR 89.28, which is pretty much equivalent to Dropbox’s pro individual package $9.99 monthly or $99 annually. However, MyPCBackup also has a biannual package offered at EUR 74.28, which is pretty competitive for subscribers who opt for longer subscription plans.
This is just an example of how the cloud storage market is becoming competitive with other players such as Crashplan with packages that start at as low as $5 per month for unlimited storage.
Now, last month while speaking to Bloomberg, Dropbox founder and CEO Drew Houston mentioned that the company had turned to positive cash flows (not to be confused with GAAP profits). This implies that Dropbox is now in a position to fund its own operations. It gives the company the “flexibility” to do so, and “we can now focus on building,” said Houston.
Dropbox now appears to have set its sights on becoming profitable while the CEO played down talks of an IPO in the near future. When answering a question on Dropbox’s IPO plans, Houston said the company “can go public on our own timeline."
Dropbox has been investing heavily in monetization and revenue growth, and this strategy appears to have started to pay off. This has led many to believe that the company is now ready for an initial public offering.
However, when you compare some of its metrics with what its publicly traded proxy, Box, had when it went public, it makes sense to wait a bit longer and build the business privately before putting the IPO card on the table.
Box’s pre-IPO figures of 25 million registered users and 34,000 paying organizations are clearly dwarfed by Dropbox’s current figures of more than 500 million users and about 150,000 paying businesses.
However, when you look at the metrics that matter most from a business perspective, Dropbox’s 3.3 billion content interactions since inception are easily dwarfed by Box’s quarterly figure of 2.5 billion, which translates to about 10 billion content interactions in a year.
Conclusion
In summary, Dropbox has most of what many investors would love to see in a company before investing via an IPO. However, there are a few crucial metrics that it needs to sort out if it wants to have a more successful period as a public company than what its counterpart Box has experienced over the last 18 months.
Box is still unprofitable while its cash flows remain in negative territory. The stock price has been pretty decent this year maintaining prices above the $10 mark, which is basically $4 below its IPO price of $14.
The market is also becoming more competitive by the day as industry giants like Microsoft, Apple, Alphabet and Amazon among others continue to push prices down. Smaller players like MyPCBackup and Crashplan are also in with a shout providing competitive packages to users.
This has changed the picture of the market and now Dropbox might yet opt to focus on remaining competitive rather than plotting for an IPO, at least in the short term.
Disclosure: I have no position in any stock mentioned in this article.
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