Commentary

All Tech Eyes On Dropbox IPO As Its Target Valuation Disappoints

Dropbox, the cloud-based file-hosting service business that has refused to evaporate in the face of competition from the likes of Apple, Google, Microsoft and Amazon, is going public at an initial valuation of about $7.5  billion — but that’s less than its $10 billion valuation as a private company in 2014. It is offering 36 million shares and expects the debut price to be between $16 and $18 per share. 

The company had filed a preliminary prospectus with the Securities and Exchange Commission on Feb. 23.

“The company could always perform unusually well when trading opens — a 40% to 60% ‘pop’ on opening day would lift the company back up to its prior valuation — but that’s a big gamble. Instead, the company’s shareholders will most likely see the value of their shares fall when Dropbox, under ticker symbol DBX, begins trading on the Nasdaq,” writes ReCode’s Theodore Schleifer.

“The performance of Dropbox — along with Spotify, which is also expected to trade publicly in the early spring — will be watched closely by venture capitalists as the two marquee IPOs of the first half of the year. There’s a chance that some companies shy away from going public if they see companies like Dropbox are valued more highly when they stay private than when they go public,” Schleifer continues.

“The lower potential valuation suggests that public market investors don’t share nearly the same enthusiasm for technology companies that venture capitalists once did, raising questions for a horde of other high-priced start-ups that are edging their way toward the public markets,” agrees Michael J. de la Merced for the New York Times.

Still, “that valuation level would make it the largest U.S. tech IPO since Snap Inc. made its debut in March of 2017, according to Dealogic,” writes Maureen Farrell for the Wall Street Journal. “The company also revealed in its filing that the corporate investment group of Salesforce.com Inc., which has been an investor in the company, will serve as a so-called anchor in the IPO and will buy $100 million worth of the shares being offered when the IPO closes in a private placement.”

“Salesforce's curiously timed investment in Dropbox, on the eve of the tech startup’s IPO, could hint at an acquisition further down the line,” writes Business Insider’s Becky Peterson for SF Gate. Tom Roderick, managing director at Stifel, tells her that product synergies between Salesforce and Dropbox “make a lot of sense.” Salesforce will pay $17 per share, “but don't expect [it] to swoop in and buy Dropbox on the eve of the IPO, the way Cisco acquired AppDynamics right before its IPO in January 2017.  There is ‘no chance’ of an acquisition happening ahead of the IPO,” Roderick tells Peterson.

In a profile of company CEO and co-founder Drew Houston that led the print edition of yesterday’s New York Times business section, Nellie Bowles paints the picture of a driven and persistent geek who grew up in the Boston suburb of Acton playing — and beta-testing — computer games while he was in middle school. He fixed neighbors’ computers and worked for a robotics start-up as a teenager, aced the SAT and got into M.I.T., started a 1990s cover band and acquired the reputation of being a frat boy after starting Dropbox with fellow M.I.T. student Arash Ferdowsi in 2007.

“He’s maybe one of the last ones of a very un-C.E.O.-like C.E.O.,” Gartner VP Jeffrey Mann, tells Bowles. “He was technical. He started out by coding. Most start-ups now when they get to that size, founders like him get pushed aside for someone with a finance or management background. But he managed to stay there.”

Not that there haven’t been some trying times along the way.

For one, “not long after Dropbox launched, Apple threatened to kill it. Steve Jobs summoned Dropbox CEO Drew Houston for a 15-minute meeting at Apple’s headquarters in 2009 to discuss buying the cloud storage startup. But Houston wasn't interested in selling,” relates Seth Fiegerman for CNN Tech.

Houston later told an interviewer that Jobs began “taunting a little bit: ‘Look, we're gonna have to come after you.’ 

“In 2011, Apple did just that with the launch of iCloud,” Fiegerman continues. “Yet, Dropbox is still here.”

Indeed. And it’s about to make Houston, a 35-year-old bachelor who still plays video games with his buddies on weekends, Bowles reveals, the latest tech billionaire.

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