The file sharing tech company Dropbox is launching an initial public offering. While the company hasn’t announced an official launch date as of yet, investors are excited as everyone seems to be expecting for it to happen soon. So, what do you need to know about the IPO?
Dropbox has priced its IPO
Recently, Dropbox announced the price of its IPO, with a price range between $16.00 and $18.00 per share. Ultimately, this brings the target valuation of the company to between $7 billion and $8 billion. Interestingly enough, this price actually comes at a discount to venture funding it received back in 2014. At that time, the company raised around $350 million with a valuation of $10 billion.
Dropbox isn’t profitable
One thing that I like to dig into when looking at IPOs is the profits that the company has generated as a private company. For Dropbox, there have not even been any profits quite yet. In fact, in an S-1 filing the company reported 2017 revenue in the amount of $1.11 billion. However, the loss in this period came to $111.7 million.
Nonetheless, the company has seen some pretty strong revenue growth. In fact, the $1.11 billion seen in 2017 was up year over year from $603.8 million in 2016, which was also up from $603.8 million in 2015. So, while the company isn’t reporting a profit quite yet, there may be strong interest in Dropbox shares as a result of consistent and overwhelmingly strong growth in revenue.
Very low dependence on channel partners
One thing that Dropbox definitely has going for it is that it has very little dependence on channel partners. In fact, according to the company, over 90% of revenue comes from self-serve channels. These are channels owned and operated by Dropbox, like the company’s app or its website. So, while there is a small dependence on channel partners, the company has proven that it is capable of achieving growth and sustaining a strong customer base of over 500 million users in 180 countries without depending on other entities.
However, it’s important to keep in mind that out of the 500 million users the company has amassed, only about 11 million of them are paying to use the service. While the company has done a good job of attracting around 92% of fortune 500 companies as customers, investors are going to want to see growth in the ratio of paying users to free users.
Cost cutting through strong infrastructure moves
Dropbox has a strong, custom-built infrastructure that provides nearly 100% data durability. Through various data center locations and the use of Amazon Web Services data centers in the U.S. and Europe for the remainder of its users, the company has cut infrastructure costs dramatically. In fact, in 2017 alone, operating costs were cut by around $35.1 million.
Salesforce loves Dropbox
On March 9, Dropbox issued a press release announcing that it had entered into an agreement with Salesforce (CRM). Under the terms of the agreement, the two companies would collaborate to enable companies of all types to collaborate and more deeply connect with their customer base across sales, servicing, marketing, commerce and more. In a statement, Dennis Woodside, chief operating officer at Dropbox, had the following to offer with regard to the collaboration:
“Salesforce has completely changed the way businesses connect with their customers through the use of cloud, social, mobile IoT, and AI technologies… Together, we have the opportunity to fundamentally change how people work.”
The ecosystem is massive
The ecosystem that Dropbox has amassed is absolutely massive. In fact, through third-party applications, developers and technology partners, the company’s platform now gets more than 50 billion API calls per month. Not to mention that more than 500,000 developers have registered and built applications on its platform.
The risk is real!
While most information surrounding Dropbox seems to be positive, and there is some excitement still out there surrounding tech, it’s important to keep in mind that with investment comes risk. At the end of the day, IPOs tend to be highly speculative and can come with high levels of risk. Not to mention, excitement surrounding technology IPOs has tapered off quite a bit in recent years. So, if you’re going to play the Dropbox IPO, make sure that you do your due diligence and you move with caution.
