The file-sharing and storage company Dropbox recently filed for an initial public offering with the Securities and Exchange Commission, marking the approach of one of the most anticipated IPOs in the technology industry.
It is seeking to raise $500 million from its IPO, intending to use the money for a variety of purposes, including potential acquisitions. According to Reuters, the company’s common stock will be listed on the Nasdaq composite under the ticker symbol “DBX.”
As of its most recent financing round, Dropbox was privately valued at around $10 billion, making it one of the most valuable venture-backed companies in the United States. Dropbox is also among the exclusive group of tech companies known as “unicorns,” startups valued at more than $1 billion by private investors who have funded their growth, according to The New York Times.
Investors have been anxious to know when these highly valued startups will go public. If Dropbox fares well in the public markets, other unicorn companies may soon follow suit. Many large tech companies have filed or are planning to file IPOs early this year, including Apollo Global Management’s company ADT Security Services and Spotify, the world’s largest paid music service.
Similarly hyped tech startups did poorly after going public last year, however. Shares of Snap Inc., the company that created the popular social media app Snapchat, did well initially after the company’s IPO, but is now just barely above the offering price of $17 a share. Another high-profile startup, the meal delivery company Blue Apron Inc., went public at $10 a share last year and is now trading at only $2.14 a share, as of press time. If Dropbox performs poorly, it could discourage other companies from going public as well.
Dropbox’s IPO should do well, on account of the company’s recent performance. Although it is not making a profit, its losses are narrowing while its gains are increasing. Last year, Dropbox lost $112 million, compared with $210 million the previous year. Its revenue rose to $1.1 billion last year from $845 million the year before, according to The New York Times.
In 2007, Drew Houston and Arash Ferdowsi founded Dropbox after meeting as students at the Massachusetts Institute of Technology. Soon after graduating, Houston reportedly forgot to carry his USB memory sticks around, which gave him the idea of cloud storage for his files.
The two friends wanted to make it easier for users to gain access to their digital information, including documents, photos and videos, on any device and to automatically keep all those files updated, in the event of modification.
Since then, Dropbox has grown into one of the largest file-storing companies around. According to Bloomberg, the company had 500 million registered users and 200,000 business customers as of August.
Of those 500 million users, only 11 million are paying subscribers. Some users may sign up for multiple accounts, so this number does not represent the total number of unique users.
Furthermore, because users can sign up for multiple accounts, and use Dropbox in tandem with other cloud services such as Apple’s iCloud and Google Drive, a large percentage of users may never upgrade to a paid subscription for Dropbox’s service. Dropbox itself even provides additional free storage in gigabytes for users if they refer the service to their friends, which increases user count but lessens the likelihood users will convert to a premium subscription.
This poses a problem, as paying subscribers are critical to the company’s livelihood. In the company’s S-1 statement, Dropbox mentions that its business “depends on our ability to retain and upgrade paying users, and any decline in renewals or upgrades could adversely affect our future results of operations.”
It also declares that its “future growth could be harmed if we fail to attract new users or convert registered users to paying users.”
The company is competing with offerings from much larger technology firms, such as Google, Microsoft Corp. and Amazon.com, as well as its cloud storage rivals Box and Atlassian.
The largest challenge for Dropbox may lie in convincing potential Wall Street investors that it is different from its competition. The company will most likely advocate the tech infrastructure supporting its cloud service.
Dropbox has spent hundreds of millions of dollars to build its own data centers and reduce its dependence on Amazon Web Services, a rare occurrence for a tech company that provides a service to hundreds of millions of users.
This decision has allowed it to cut costs while increasing file transfer speed. According to the company’s S-1 statement, in building its own infrastructure, Dropbox reduced its operating costs by $74.6 million over the following two years.
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