Dropbox IPO – Buying opportunity

At first glance the opportunity to buy Dropbox shares at the forthcoming Dropbox IPO might seem problematic; after all, why should you buy shares in a company that is most famous for its free cloud storage service? Surely the company provides a service that hundreds of millions utilise, but these many customers are not paying for the service. Your interest in the Dropbox IPO might have been piqued by the company’s 2014 valuation of US$10 billion but if you are familiar with that fact then you will; probably also remember the way in which large investors reduced that valuation by a half the following year. This might lead to worry about the overall profitability of Dropbox and have an influence on your decision about whether the company’s IPO presents a buying opportunity or not. The key question would seem to be, can Dropbox find enough customers willing to pay for the extra services that they offer.

If this is your principal concern when you are wondering whether the forthcoming Dropbox IPO presents a buying opportunity or not, then you might be intrigued to learn about the satisfactory state of the company’s finances. 2016 saw Dropbox’s sales running at US750 million, a significant rise from $US 400 million in 2014, and marked the first year in which the company’s finances entered positive cash flow territory. Part of the cause for this success is the growing popularity of both Dropbox Pro and Dropbox Business, both improved versions of the basic free app which offer greater sharing and storage facilities and which are available respectively $100 and $150 per customer per year. Many of Dropbox’s customers use Pro at home and Business at work, and many employers are taking advantage of the team-friendly design of Business. By 2016 over 200,000 companies had signed up for Dropbox business. You will be able to appreciate the way in which the original free app established a popular presence which created an environment in which more advanced, monetized apps could flourish and this factor in Dropbox’s increased profitability should certainly influence your opinions on whether or not the Dropbox IPO presents a buying opportunity or not.

Of course, this is not the only factor which is impacting on the Dropbox IPO. The company has in general been making changes and investments to ensure its future position in the cloud storage market. New products such as the virtual white space Paper, ideal for sharing documents of all kinds look promising. Dropbox has been investing in its engineering and sales staff and has made the move away from Amazon’s cloud platform to its own data centres, better to facilitate improvements in the synching and storage of its customers’ information. In fact, Dropbox has been expanding and strengthening its position as a supplier of productivity and collaboration tools and thus seems in a place to profit from the value of a market estimated at US$30 billion. These are important factors to bear in mind when you ask yourself whether the Dropbox IPO presents a buying opportunity.

(Simon Topliss, Research Analyst)

 

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