Dropbox, Inc. is a file hosting service company based in San Francisco, California. The company specializes in cloud-based storage, synchronization, and personal cloud and client software. Essentially, Dropbox allows users to create unique folders on their personal computers; the software saves and syncs those folders to the cloud, where the users can view the files within those folders at any computer location.
The company filed for an initial public offering (IPO), pricing its shares at $16-$18 a piece, putting its valuation as high as $8 billion. While this valuation was lower than the $10 billion it received during a 2014 funding round, the company has achieved rapid growth since it was founded in 2007, with over 500 million users in over 200 countries as of 2018. Along with the valuation and IPO pricing, Dropbox also announced a $100 million pre-IPO private placement to Salesforce Ventures (CRM), reported CNBC.
On March 21, 2018, the company raised its price range by $2 to $18-$20 per share, due to strong demand, pushing its valuation higher to $8.7 billion. One day later, the IPO was priced at $21, above its expected price range. On March 23, 2018, its first trading day, the stock opened at $29 per share, 38% above its IPO price. As of August 10, 2018, Dropbox has a valuation of over $12 billion.
This $12 billion valuation is more than 10% higher than the previous numbers reported four years ago. Dropbox was given a $10 billion valuation in January 2014 after the company raised $1.1 billion in an investment round. When a private company decides to raise funds, it goes through a 409(a) valuation by an independent third-party firm. The firm gains exclusive access to the company's books and data.
The 409(a) valuation gives the private company an overall value as well as a price per private share. After the value has been decided, investors can come offer to buy shares for a specific price per share, usually priced at a premium, in reference to the true value per share.
The $10 billion valuation was derived from the post-money valuation after the $1.1 billion investment round. However, many knowledgeable firms, such as Business Insider and CB Insights, claimed that this valuation was too high.
Slow Growth and No Innovation
In January of 2017, CEO Drew Houston announced Dropbox's annualized revenue run rate was $1 billion, making it one-tenth of the then $10 billion valuation. With the company going public, it now faces an uphill challenge of delivering big growth in order to keep investors hooked.
Dropbox has chosen to operate in a highly competitive business environment. Competitors such as Google Drive, Amazon Cloud (AMZN) and Box (BOX) have caused what's known as a race to zero, where competitors keep slashing prices so they can compete in the marketplace.
These large companies, such as Google (GOOGL), are not afraid to burn dollars. Dropbox may be facing a never-ending decline in prices.