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2018 IPO Prospects: Will Dropbox Be Able to Compete With The Giants?

Posted on Thursday, Mar 8th 2018

According to a Research and Markets report published last year, the global Cloud Storage Market is expected to grow at a substantial rate of 30% annually over the next few years to $92.488 billion by 2022 from $25.171 billion in 2017. Recently, Billion Dollar Unicorn player Dropbox filed its S-1 to go public. The company had been waiting to list for a while, but last year’s disappointing technology market IPO performance forced it to stay away.

Dropbox’s Financials

California-based Dropbox was founded in 2007 by university graduates Drew Houston and Arash Ferdowsi after the idea behind the service came to Drew on a bus ride. Drew was on the bus when he realized he needed to access some files on a USB drive he had left somewhere else. Soon, Dropbox was released to offer cloud-based freemium storage service to individuals and organizations.

Dropbox’s service has seen strong adoption in the market. Its revenue has grown from $603.8 million in 2015 to $844.8 million in 2016 to $1.106.8 billion in 2017. Losses have reduced during the same period from $325.9 million in 2015 to $210.2 million in 2016 to $111.7 million in 2017. It has not been profitable, but it has been cash flow positive since 2016.

Among operating metrics, paying users have grown from 6.5 million in 2015 to 11 million in 2017. While that is strong growth, it is still a small number compared with the more than 500 million registered users that the service has over 180 countries.

Dropbox has been venture funded so far. It has raised $1.7 billion from venture investors and through long-term debts. Its investors include JPMorgan, BlackRock, Innovation Department, QueensBridge Venture Partners, Salesforce Ventures, T. Rowe Price, Index Ventures, Accel Partners, AFSquare, Benchmark, Glynn Capital Management, Goldman Sachs, Greylock Partners, Institutional Venture Partners, RIT Capital Partners, Sequoia Capital, SV Angel, Valiant Capital Partners, Ali Partovi, Amidzad Partners, Bobby Yazdani, Hadi Partovi, Pejman Nozad, Signatures Capital, and Y Combinator. Its valuation had soared to $10 billion in 2014, but market reassessment in 2015 reduced it to nearly half that amount.

Last month, Dropbox finally filed to go public this year on the Nasdaq under the ticker DBX. It plans to raise $500 million through the public offering.

Dropbox’s Growing Competition

Dropbox’s biggest concern is the increasing competition it currently faces. While Box has been its rival for a while, it will face stronger competition from bigger players like Alphabet, Amazon, Apple, and Microsoft. All these vendors are able to offer cheaper cloud-based storage options by bundling them with the other services they offer.

Dropbox realizes the competition it faces and is trying to partner with some of these players. It recently announced a tie-up with Google Cloud. The partnership will bring together Dropbox and G Suite customers to offer better collaboration. Prior to this tie-up, Dropbox has entered into similar agreements with Adobe Creative Cloud’s Adobe XD, Microsoft, Apple, and Workplace by Facebook.

Questions for Drobpox’s Board

Today, there is an unprecedented opportunity available to SaaS players and several smaller players are looking for an exit. Among those, are there players with innovative and differentiated functionality that might give Dropbox an edge with competitors? I would like to know if Dropbox is looking at acquisition of smaller SaaS startups both in the US and in countries like India to find a differentiated and defensible positioning for its post-IPO run. To convince investors, this would become essential.

More investigation and analysis of Unicorn companies can be found in my latest Entrepreneur Journeys book, Billion Dollar Unicorns.

Photo Credit: Ian Lamont/Flickr.com

This segment is a part in the series : 2018 IPO Prospects

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[…] Dropbox (NASDAQ:DBX) finally went public. The company was expected to list last year, but the disappointing IPO performance for the technology industry resulted in a delay. It’s still early days, but the company appears to have had a turbulent […]

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