Monday, November 25

Dropbox Drops Valuation by $2.5 Bn Ahead of IPO

Dropbox, the file storage company, set proposed terms for its initial public offering. The company’s IPO owns 36 million shares on offer, 5.4 million as underwriter green-shoe offering, a $16-$18 per-share price range, a maximum initial sale of $648 million and a fully-cocked $745.2 million bill including the green-shoe shares. This puts the valuation of the company at around $7.5 billion ahead of its initial public offering, hence making Dropbox the biggest tech IPOs in the last few years. However, this figure is lower than the $ 10 billion valuation set by the company in 2014 when raising private capital.

This valuation will make the file storage company the largest U.S tech IPO since Snap Inc. made its stock debut in March 2017. The filings released by the company also revealed that Salesforce.com Inc, a corporate investment group and investor in Dropbox would buy $100 million worth of the shares being offered as a private placement when the stock market launch will close.

Dropbox is among the few very richly valued startups to test the stock markets in recent. Therefore, the hundreds of U.S private companies with a valuation of more than $1 billion will closely monitor Dropbox’s IPO launch. Generally, startups with a high valuation prefer to avoid stepping in the stock market is because they can still raise enough capital from rich investors.

The San Francisco-based company will most certainly join the trading market on Nasdaq under the initials “DBX” late next week. Top-venture capital companies comprising of the likes of Sequoia Capital and Accel Partners and mutual funds companies such as Fidelity Investments and T. Rowe Price have mutually invested more than $600 million into Dropbox as they believe that the company have a huge chance of becoming the biggest consumer business of file storage in the world.

Drew Houston and Arash Ferdowsi, both MIT computer-science alumni, founded Dropbox in 2007. The platform allows users to store, share and collaborate on documents, audios, videos, photos and other file formats. They now possess more than 500 million registered users, although most use the free, basic version with limited storage. In fact, only 11 million of their users are willing to pay for the service.

Although now 11 years old, the company never had a profitable year, which isn’t surprise for such investment-laden tech startups. Last year, they recorded revenues of $1.11 billion and a net loss of $111.7 million. While they were able to decrease losses, their revenue growth is on a declining pace.

Dropbox is still loss-making and its revenue is not enough to justify a market value of $10 billion,” said Phil Davis, Chief Executive of investment advisory service, Phil’s Stock World. Before adding, “The price had to come down to lure in the investors.”

Dropbox’s drop in valuation leads us to believe that other unprofitable companies like Uber Technologies Inc. with very lots of investments at high valuations will have to consider revising their company’s worth if they wish to join the stock market.

Dropbox’s board settled on providing the co-founders with stock awards ahead of the IPO launch in December last year. If one share of Dropbox attains the $60 mark, Mr Houston could receive a colossal $930 million over the next 10 years while Mr Ferdowsi could receive $396 million.

In the last few years, Dropbox received tough competition from tech giants like Alphabet Inc’s Google and Apple Inc., which have also ventured in the consumer-storage market. To maintain their grasp on the market, Dropbox began providing storage schemes designed specifically to businesses.