With Competition Rising, Dropbox Now a Public Company After $756M IPO

Xconomy San Francisco — 

[Updated 3/23/18, 3:35 p.m. See below.] Dropbox has raised about $756 million in its public market debut after pricing its IPO at $21 per share, according to news reports citing sources familiar with the matter. It’s the largest initial public offering for a U.S. tech company since Snap’s $3.9 billion offering a year ago. That would give Dropbox a valuation of more than $8 billion.

Dropbox had initially set a goal to raise about $500 million, which it bumped up as demand for its public debut rose, according to news reports. The company sold 36 million shares at $21 per share, according to CNBC and The Wall Street Journal. That’s above the $18 to $20 range it set Wednesday. Notably, Salesforce Ventures, the investment arm of the customer relationship management company, had committed to purchase $100 million of Dropbox’s stock, according to a document filed with the SEC Wednesday.

The San Francisco-based company has pretty simple plans for the hundreds of millions it raised in the IPO: to repay around $193.1 million in debt, and have cash on hand for anything from acquiring businesses or products to general corporate expenses. Dropbox will trade on Nasdaq starting Friday under the ticker “DBX.”

Founded in 2007 by MIT students Drew Houston and Arash Ferdowsi, Dropbox has grown to become a titan of the storage market, allowing users to back up, organize, and store documents, images, and other files online. A graduate of the Y Combinator accelerator, Dropbox is the program’s first company to go public.

The IPO is being closely watched by the tech community, which is seeking insight into how receptive the public markets will be to a large, established U.S. tech company—and how the stock will perform compared to Snap. About half of the world’s 236 so-called “unicorn” private businesses—with a valuation of greater than $1 billion—are headquartered in the U.S., CB Insights reports.

Dropbox has plenty of competition in cloud storage, from Box (NYSE: BOX) to tech giants such as Google (NASDAQ: GOOGL) and Amazon (NASDAQ: AMZN). Even Apple (NASDAQ: AAPL), which offered to acquire Dropbox in 2011 (in a famous meeting between Houston and Steve Jobs), remains a competitor to Dropbox, with its iCloud product available to iPhone and Mac users.

“Over 64 percent of Americans own at least one Apple device, with the majority having iCloud built-in,” wrote Vineet Jain, CEO and co-founder of a smaller cloud storage competitor, Egnyte, in a guest piece for Entrepreneur. “Should Apple decide to turn up the heat and further develop the functionality of iCloud, that could put a tremendous amount of pressure on Dropbox.”

Meanwhile, Dropbox has grown into a billion-dollar business. Its annual revenue increased to $1.1 billion in 2017 from about $604 million two years earlier, while its net loss declined to $111.7 million from $325.9 million. Dropbox hasn’t yet made a profit, so the interest in its IPO shows there is still an appetite for potentially risky (if established) Silicon Valley tech companies.

One attractive part of Dropbox’s financials is its expanding free cash flow (operating cash flow minus capital expenditures), which rose to $305 million in 2017 from being in the red in 2015. CNBC noted, however, that Dropbox’s free cash flow numbers don’t account for the cost of its capital lease payments—any kind of lease for buildings that hold something such as a data center—which would cut its free cash flow numbers by almost $140 million a year. (Box and Amazon both report capital lease payments as a part of their free cash flow calculations, according to CNBC.)

Dropbox once relied heavily on Amazon and its AWS service for data storage, but the company reportedly began in 2013 to build out its own data centers, storage software, and overall cloud computing capabilities in California, Texas, and Virginia, where it now stores much of those millions upon millions of bytes of data. Dropbox believes that has been a big help to its free cash flow.

The company says it has more than 11 million paying customers and employs 1,858 people. Sequoia Capital held a 23.2 percent stake before the IPO, and Accel had 5 percent of total outstanding shares. CEO and co-founder Houston owned 25.2 percent of the company.

[Updated to add first-day trading information—Eds.] Dropbox had a good first day in the markets. The company’s stock (NASDAQ: DBX) opened at $29 per share Friday, a 38 percent premium to the $21 per share it priced at Thursday. Shares traded at $28.40 as of 3:35 p.m. in New York.