Will the IPO of Dropbox resemble Facebook or Snap?

 

The tech company Dropbox, valued at approximately $10 billion, is preparing for an initial public offering (IPO) aiming to raise $500 million later this month. This move makes it the latest “unicorn” (privately held company worth over $1 billion) to go public, attracting significant interest. Dropbox was founded in 2008 and has provided reliable, user-friendly cloud storage, offering 2GB of free storage initially. Despite its widespread popularity with 500 million registered users, only 11 million users pay for premium storage services. This low conversion rate has contributed to Dropbox’s financial challenges, as it reported a loss of $112 million in its last fiscal year. Competition in the cloud storage market comes from rivals like Box, Google, Microsoft, and Apple, which offer their own cloud storage solutions with varying degrees of free storage capacity. Dropbox’s market share in mobile devices dropped from 63.8% in the previous year to 47.3%, while Box experienced a 54% increase in its user base and Google Drive grew by 51% over the same period.

However, when measured by actual app activity, Dropbox maintained a healthy usage rate of 77%. Despite this, most of its users still rely on free storage. Dropbox’s IPO prospects are influenced by its low conversion rate, but it does show some promise. The company saw a 70% increase in paying users compared to the previous year, with 11 million users generating around $112 in revenue per paying user. Dropbox has also improved its financial performance, reporting a smaller loss in 2017 ($112 million) compared to 2016 ($210 million). The upcoming IPO has drawn comparisons to Snap’s IPO in 2017, another tech company that went public without posting a profit and burned through investor funds. Snap’s stock awards to executives and dual-class share structure with no voting rights for public shareholders were contentious issues. Dropbox is planning a dual-class share structure but will offer some voting rights to public shareholders. Despite these concerns, Dropbox’s IPO is generating interest as it joins the ranks of tech unicorns going public, though its low conversion rate and competition in the cloud storage market pose significant challenges.

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