Dropbox Inc. (DBX, Financial) is finally a public company following its initial public offering last week.
The San Francisco-based company, which was established in 2007, operates a file-sharing platform. It has been one of the most disruptive platforms in its market over the last decade and continues to show promise despite an emerging school of critics that suggest blockchain technology could lead to its demise.
Others have dismissed such suggestions, arguing that what blockchain technology brings to the market is slightly different to what Dropbox offers and, thus, the file-sharing portal could yet survive the storm. According to a Medium article, blockchain is about the process, rather than a simple information sharing service provided by the likes of Dropbox and other cloud-based services.
With blockchain, one action triggers another, whereas information sharing platforms do not necessitate a chain reaction when a person shares a file. Take, for instance, trading bitcoin, which runs on the blockchain infrastructure. A coin must be mined before it can be sold. From then on, a record of every person who buys and sells it is kept in the distributed ledger network, thereby enabling future buyers to access that information instantaneously. In other words, a single action triggers another.
If you sell, someone buys. It is a conditional chain of events similar to the way smart contracts work. But when we look at simple cases of information sharing, there is nothing to do with contracts. People have been storing and sharing information since the birth of the internet. Anything you post online, whether it is on a blog, website or a social media platform, can be viewed as something you have shared. Sharing has also been happening via email for the last two decades now; it has nothing to do with conditions or pre-requisites.
Therefore, fears of blockchain disrupting the document-sharing market could be perceived as far-fetched with no adverse effects on companies like Dropbox. For now, investors do not need to worry about the company’s business model suddenly becoming outdated.
Dropbox broke the $1 billion revenue threshold in 2017. Its bottom line, however, has yet to surpass the break-even point. It currently stands at an annual net loss of $111 million.
Nonetheless, investors can look at the company’s growing user base, which topped 500 million in 2016, which, according to Statista, is up from about 300 million in 2014. Dropbox has also reported it now has more than 11 million paying users and over 300,000 paying work teams using its services, which gives the company a solid base for revenue generation, according to Business Insider.
The company has had to endure competition from technology giants Apple Inc (AAPL, Financial), Alphabet Inc.’s (GOOG, Financial) (GOOGL, Financial) Google and Microsoft Corp.(MSFT, Financial), among others, in a market that is quickly becoming overcrowded due to low barriers to entry.
Dropbox has shown substantial progress in revenue generation since introducing its premium services. Last year, it revised its operational model to target corporate clients. This could be one of its strong revenue generators going forward as disruptive technologies like blockchain continue to provide users with interesting alternatives.
The company’s stock price surged on Thursday to trade above $34 before pulling back to $31.25, which values it at about $12.25 billion.
 
Given its 2017 revenue of about $1.1 billion, the current market valuation implies a price-sales ratio of about 11 times, which is high compared to its competitors. However, it is one of the few pure-play document-sharing companies that are publicly listed, with its major rivals operating a number of different businesses. This might give it an edge when investors interested in specialized companies come looking.
Conclusion
In summary, as a new entrant to the stock market, Dropbox is likely to suffer the usual turbulence technology stocks endure. While some might remain skeptical about its business model, citing the potential threat of blockchain technology, Dropbox’s premium business could help it weather the storm.
In addition, as a technology company, Dropbox could integrate innovative technologies like blockchain into its business model, which could help it fight the battle on equal footing.
Disclosure: I have no positions in any stocks mentioned in this article.
