Dropbox’s surge on the stock market has continued, with the company going up another 7% on its second day on the stock market.
The company saw its shares close at $30.45, giving the company above a $13 billion market cap, fully diluted.
When it priced its IPO, there was a question as to whether Dropbox would surpass the $10 billion valuation it achieved in its last private round. It eliminated those concerns overnight.
The first few days have been a strong indicator of investor demand for the cloud storage company.
To recap, Dropbox initially hoped to price its IPO between $16 and $18, then raised it from $18 to $20. Then it ultimately priced its IPO at $21, closing the day above $28. And it still continues to go up.
Investors like Dropbox’s improving financials.
It brought in $1.1 billion in revenue in its most recent year. This is up from $845 million in revenue the year before and $604 million for 2015.
Yet while it’s been cash flow positive since 2016, it is not profitable. Dropbox lost nearly $112 million last year. But its margins are looking better when compared with losses of $210 million for 2016 and $326 million for 2015.
Although Dropbox is very different than Spotify which intends to list next week, investors will view this favorable debut as a sign that the IPO window is “open,” meaning that there is strong demand for newly public tech companies.
The Bellevue, Washington-based company offers enterprise software for communication and collaboration.
It describes itself as the “leading cloud-based platform for work execution, enabling teams and organizations to plan, capture, manage, automate, and report on work at scale, resulting in more efficient processes and better business outcomes. ”
Smartsheet says it has 3.6 million users and its products are utilized at 90% of the Fortune 100 companies around the world.
It touts clients like Cisco and Starbucks. Smartsheet says Cisco uses it to keep tabs on spending and Starbucks uses it send product and business updates to its thousands of stores.
The company brought in $111.3 million in revenue for its fiscal 2018 year. It’s a big jump from $67 million for 2017 and $40.8 million for 2016.
But losses are also growing, totaling $49.1 million for 2018, up from negative $15.2 million and $14.3 million in prior years.
“We have a history of cumulative losses and we cannot assure you that we will achieve profitability in the foreseeable future,” the company warned in its prospectus.
Smartsheet acknowledges that it competes with Microsoft and Google on spreadsheets and other productivity tools. Its products also compete with Asana, Atlassian, Planview and Workfront.
“The market in which we participate is highly competitive, and if we do not compete effectively, our operating results could be harmed,” reads the “risk factors” section of the filing.
The largest shareholder is Insight Venture Partners, which owned a sizeable 32.1% of the company prior to the IPO. Madrona Ventures owned 28.4% of the company and Sutter Hill Ventures owned 5.4%.
Smartsheet had raised at least $106 million in venture funding, dating back to 2010, according toCrunchbase data. Last year, TechCrunch reported that it had an $800 million valuation.
The company plans to list on the New York Stock Exchange, under the ticker “SMAR.”
Morgan Stanley and J.P. Morgan are managing the offering. Fenwick & West and Wilson Sonsini served as counsel.
The floodgates have opened for enterprise tech IPOs. Last week we saw Dropbox debut and now we’ve seen filings for Zuora and Pivotal. DocuSign is also expected to file in the coming months.
Many of last year’s enterprise tech IPOs performed well, giving pipeline companies confidence in their debuts.
Spring also tends to be an active time for IPOs, with companies looking to debut before the summer slowdown.
And while consumer tech IPOs have been slow for several years now, one of the more anticipated companies looking to debut is Spotify, which is expected to go public next week via a “direct listing.”
Ordinarily, you’d call the exit a loss for Uber and a win for Grab, but the devil is in the detail. The deal that has been agreed is a very solid win for both sides which reads more than an alliance than a settlement between winner and loser.
Let’s consider the facts:
Uber takes a 27.5 percent stake in a growing business that was most recently valued at $6 billion.
That stake — worth north of $1.6 billion — is a strong return considering that Uber said today it has invested $700 million in Southeast Asia over the past five years.
Grab takes over and shuts down its largest rival’s business, all while importing any drivers and passengers that aren’t already on its platform and adding Uber Eats to its nascent food delivery play.
That’s a notable outcome for Grab, which started out offering licensed taxis only and required passengers to pay their bill in cash until three years ago. When Uber first arrived the two were hugely differentiated and market share was fairly even, but now Grab is the dominant player in the region by some margin.
Out-gunned
Despite humble beginnings, Grab — which started out in Malaysia but relocated to Singapore — has made strides over the past two years. Today, it offers more than 10 transportation services — including taxis, private cars, car-pooling, bicycle sharing, and bike taxis — across eight countries.
You might read about its localization strategy and how important it is, and for sure it is impressive.
Grab’s focus on fanning out beyond ride-sharing is designed to capture and engage users beyond just offering transportation. The theory is that this not only makes it more useful to users, but it introduces entirely different (and potentially more lucrative) business opportunities that set the company up to become a profitable entity further down the line.
But — and this is the important caveat — this product expansion is in its early stages so the effect didn’t play out on Grab’s rivalry with Uber.
In fact, it looks like a lot of the rivalry came down to the usual factor: Money.
Put simply, Grab has consistently secured the financial backing of its investors.
As one senior Uber employee in Southeast Asia aptly explained to TechCrunch recently: “They just kept giving them money!”
Compare that to the $700 million Uber had invested in Southeast Asia and you can already see an advantage which is particularly key in ride-hailing when two firms are locked in an ongoing subsidy war.
So, for all those comparisons and fancy charts that show the total amount Uber raised as a global business, it was financially outmuscled in Southeast Asia presumably because it chose to limit its investment.
Grab’s money was strategic, too.
SoftBank and Didi, the ‘Uber slayer’ of China, fronted $2 billion of the newest round, while the likes of Toyota, Hyundai, Tiger Global, Coatue Management and influential Indonesian firms Emtek and Lippo are among others to have come aboard in recent years.
Uber was often quick to point out that it gave country offices the freedom to suggest and implement localized policies and ideas, but in Southeast Asia it seemed to lack overall coherence. For example, it only appointed a regional head for Southeast Asia last August, some four years after its initial arrival.
That symbolizes its struggle to develop a strategy until it was too late. And that’s without even mentioning the wave of controversies that hit Uber as a company in 2017, which no doubt impacted decision-making outside of the U.S..
As a private company, it isn’t possible to analyze Grab’s shareholders and their ownership percentages, but Uber is likely now one of the largest investors in the business. That’s the ideal scenario for Uber and its shareholders because Southeast Asia is forecast to be a major growth market for ride-hailing, and Uber is now in the front seat with the market leader.
Currently a loss-making region for Grab and Uber, revenue from taxi apps in Southeast Asia is said to have more than doubled over the past two years to cross $5 billion in 2017, according to a recent report co-authored by Google. The industry is expected to grow more than four-fold to hit $20 billion by 2025, according to the same research.
Uber could have continued on, increased its investment and still seen success, but the deal it has landed allows it to maintain a presence via proxy while diverting resources to other markets worldwide. That stake in Grab, which is worth north of $1.6 billion as of Grab’s most recent funding round, is likely to appreciate significantly over time as the market grows and Grab’s fintech play yields fruit.
Sources close to the deal indicate that Grab gave Uber less than $100 million as part of this deal, and it will take on Uber’s roughly 500 staff across the region in addition to its ride-hailing business and Uber Eats, which is present in three countries.
More than the operational gains, Grab can now count on both Uber and China’s Didi as investors, with Uber CEO Khosrowshahi joining the board. That’s the kind of influence and experience that money can’t buy, and it may be essential for what comes next.
The next stage of ride-sharing in Southeast Asia will pit Grab against Indonesia’s Go-Jek, a $5 billion startup backed by big names including Google and Tencent. Go-Jek is leading in its home market — where it pioneered the kind of financial products and on-demand services that Grab is just launching now — and it houses ambitions to export its empire to new markets starting this year.
One source close to Go-Jek told TechCrunch that the company is preparing to launch in the Philippines potentially before the end of March. Go-Jek has been very deliberate about taking its time, but now that Uber is out of the equation in Southeast Asia, it’s time to walk to walk and amp up the battle.
It’s official, Uber has announced that it has sold its Southeast Asia-based business to rival Grab .
The deal follows a month of speculation, and it will see Grab — which is valued at over $6 billion — buy up Uber’s ride-sharing business in eight countries in Southeast Asia. It will also take over Uber Eats, which is currently present in three, and expand that service across the region during the first half of this year.
In exchange, Uber will get a 27.5 percent stake in Singapore-based Grab while Uber CEO Dara Khosrowshahi will join Grab’s board.
The deal starts to make sense when you consider that both companies share common investors — SoftBank and Didi — and that waging an expensive subsidies war in what is currently a loss-making hurts both sides.
Many consumers in the Southeast Asian region may be concerned at the end of the competition between the two, and there isn’t much time left. Grab said that Uber’s ride-sharing app will be available for a further two weeks, while Uber Eats will close down and migrate to GrabFood at the end of May.
Grab said today it has reached over 90 million downloads with more than five million drivers and agents for its fintech services.
The deal puts Grab in absolute control of Southeast Asia’s ride-sharing market, bar Indonesia, but the company doesn’t believe that the deal — which it is calling a merger — will represent any issue for Singapore’s monopoly laws.
“Grab is committed to cooperating with local regulators in relation to the acquisition. Grab believes the acquisition will add to, among others, vibrant and competitive ride-hailing, delivery and transportation spaces, and it will make a merger notification to the Competition Commission of Singapore,” the company wrote.
We shall see.
Now some money statements from the figures involved.
Anthony Tan, Group CEO and Co-founder, Grab:
“We are humbled that a company born in Southeast Asia has built one of the largest platforms that millions of consumers use daily and provides income opportunities to over 5 million people. Today’s acquisition marks the beginning of a new era. The combined business is the leader in platform and cost efficiency in the region. Together with Uber, we are now in an even better position to fulfil our promise to outserve our customers. Their trust in us as a transport brand allows us to look towards the next step as a company: improving people’s lives through food, payments and financial services.”
Dara Khosrowshahi, CEO of Uber:
“This deal is a testament to Uber’s exceptional growth across Southeast Asia over the last five years. It will help us double down on our plans for growth as we invest heavily in our products and technology to create the best customer experience on the planet. We’re excited to take this step with Anthony and his entire team at Grab, and look forward to Grab’s future in Southeast Asia.”
The deal puts pressure on Go-Jek, the $5 billion market leader in Indonesia backed by Google and Tencent, which has not yet expanded across Southeast Asia. Grab has cleared the way to be the single dominant force in all other markets in the region — which has a cumulative population of over 600 million people — so if Go-Jek is going to venture overseas, now is definitely the time.
This retreat marks Uber’s third exit from an international geography at the hands of a rival.
Uber previously exited China in 2016 after striking an equity exchange deal with Chinese market leader Didi and it quit Russia last year after it sold its business in the country to local rival Yandex.
The Grab deal feels somehow different since, prior to last year, Uber and Grab were fairly evenly matched. But a litany of internal issues at Uber in 2017 — which ultimately led to the resignation of co-founder and CEO Travis Kalanick and an investment from SoftBank — saw Uber take its eye off the ball in Southeast Asia.
Grab, to its credit, pushed on and raising another $2.5 billion last year from investors while it expanded into financial services through a payment system and, most recently, plans for micro-loans and insurance.
This deal seemed unlikely a year ago, now the question is whether there is further consolidation to come. India, where Uber battles domestic rival Ola, is the most obvious market where that could happen.
After weeks of speculation, Uber has concluded a deal that will see it sell its business in Southeast Asia to local rival Grab . The company plans to announce the agreement this coming week and potentially as soon as Monday, two sources have confirmed to TechCrunch.
Full details of the arrangement aren’t fully clear at this point, but TechCrunch understands that Singapore-based Grab will take over Uber’s ride-sharing in the eight markets in Southeast Asia where it is operational. It will also take ownership of Uber Eats, which is available in Thailand, Malaysia and Singapore. Bloomberg reported today that Uber will take 25-30 percent equity in Grab in exchange.
Both Uber and Grab declined to comment when contacted separately for comment.
The successful conclusion of negotiations comes less than two months after Uber, an early investor in Grab, secured a long-drawn-out deal to become an Uber shareholder.
SoftBank is thought to have favored consolidating Uber’s businesses in emerging markets, with Southeast Asia — a loss-making geography for all — one of its apparent targets. That’s despite significant growth potential as more of the regions 600 million consumers come online for the first time.
Revenue from taxi apps is said to have more than doubled over the past two years to cross $5 billion in 2017, according to a recent report co-authored by Google. The industry is expected to reach $20 billion by 2025, the same report found.
Uber previously exited China in 2016 after striking an equity exchange deal with Chinese market leader Didi. The U.S. firm also quit Russia last year after it sold its business in the country to local rival Yandex. Unlike those two deals, however, Uber had held a decent position in Southeast Asia in recent times although it appeared to lose considerable market share last year. Issues inside Uber, including the resignation of founding CEO Travis Kalanick and investor squabbles, seemed to divert its attention away from Southeast Asia. All the while, Grab marched on and it notably refueled its tanks with over $2.5 billion in additional funding from investors.
Grab isn’t the only rival in Southeast Asia, however. Go-Jek leads the Indonesian market and it recently gained the backing of Google, JD.com and Tencent at a valuation of some $5 billion. Despite winning in Indonesia, Southeast Asia’s largest economy and the world’s fourth most populous country, Go-Jek is yet to venture overseas. This Uber-Grab consolidate certains gives it a good reason to expedite those plans.
The first quarter is almost over, and despite Dropbox’s splashy debut on the public market earlier today, it was preceded by just two other U.S. tech companies to IPO in 2018: Cardlytics and Zscaler.
Will Dropbox turn things around? Will the fact that Spotify is readying its debut get the momentum going at long last?
It all depends on how Dropbox and Spotify perform and how they impact what’s known as the IPO window. When new issuers perform well, it typically swings wide open. When they don’t, well, it gets slammed shut.
At this point, it’s been four years since we had an IPO window big enough for a stream of companies to pass through. In 2013, 50 tech companies went public. In 2014, the number was 62. Things grew chillier after that, with just 31, 26 and 27 companies getting out the window in 2015, 2016 and 2017, respectively.
Why haven’t things warmed up again, particularly with a stunning 171 venture-backed “unicorns” waiting in the wings?
Some high-profile flops are one large factor. Last year, venture-backed darlings like Blue Apron and Snapchat braved the public markets, but it was public shareholders who had to keep a stiff upper lip as their shares abruptly sputtered. These kinds of scenarios can seriously spook pipeline companies and their advisors, particularly in the world of consumer tech.
The availability of late-stage capital is also making it far easier to stay private longer. With SoftBank’s $100 billion Vision Fund writing enormous checks to growth startups — and traditional venture funds reacting by raising their own gigantic venture funds — this trend is only expected to continue.
There are also plenty of sky-high valuations to consider. Startups were able to command numbers that weren’t necessarily tied to reality in 2014 to 2015. That makes the prospect of a public offering, at a potentially much smaller valuation, something to be put off as long as possible.
Still, IPO insiders think things shifted once again — that a growing number of companies will have the wind at their backs in 2018. They point to strong signals like Zscaler doubling on its first day of trading and Dropbox pricing above its IPO range as favorable signs of what’s to come. Indeed, they say that behind the scenes, a lot of prep work has already set the stage.
“The number of tech companies, across the spectrum, now meeting with (if not engaging) bankers and working with the auditors to be ‘IPO ready’ is very definitely on the upswing,” says Lise Buyer, an IPO consultant and partner at Class V Group. The “window is already wide open, and there is enormous pent-up demand at institutions for new companies that are priced reasonably.”
John Tuttle, global head of listings at the New York Stock Exchange, similarly says he expects “a strong year if market conditions hold constant.” He characterizes the pipeline for technology offerings as “strong,” particularly enterprise technology companies.
Tuttle also notes the growing number of far-flung tech companies looking to list their share in the U.S. Among these are three China-based companies with plans to raise hundreds of millions of dollars by selling American depositary shares in the not-too-distant future, including Bilibili, a nine-year-old, Shanghai, China-based anime video sharing platform; iQiyi, an eight-year-old Beijing-based video streaming service; and OneSmart, a 10-year-old, Shanghai, China-based K-12 after-school education provider.
Hardware-maker Xiaomi is expecting to stage a publicly offering both in the U.S. and in Hong Kong this year, too.
That’s saying nothing of the Canadian and Latin American companies that are offering shares to U.S. investors. Among them: Brazil’s payments business PagSeguro Digital; it went pubic in January on the NYSE.
So who’s next? Following Dropbox and Spotify, Zuora, the 11-year-old, cloud subscription management platform has finally filed to go public. Another company to just file is Pivotal Software, a spinoff of EMC and VMare. DocuSign is on file confidentially. We’re also hearing that quite a few other enterprise technology companies are gearing up to go public.
Just don’t expect to see big consumer tech companies like Airbnb, Uber and Pinterest listing in 2018. A lot of these “decacorns” are hoping to debut in 2019, partly because they’ve raised enough money that they can’t afford to make mistakes at this point.
They’ve raised enough money that they can wait, too. That means the rest of us will have to wait alongside them.
And for one that Steve Jobs famously called a feature, and not a company, it certainly was an uphill battle to convince the world that it was worth even the $10 billion its last private financing round set. It’s now worth more than that, but that follows a long series of events, including an increased focus on enterprise customers and finding ways to make its business more efficient — like installing their own infrastructure. Dropbox CEO Drew Houston acknowledged a lot of this, as well as the fact that it’s going to continue to face the challenge of ensuring that its users and enterprises will trust Dropbox with some of their most sensitive files.
We spoke with Houston on the day of the IPO to talk a little bit about what it took to get here during the road show and even prior. Here’s a lightly-edited transcript of the conversation:
TC: In light of the problems that Facebook has had surrounding user data and user trust, how has that changed how you think about security and privacy as a priority?
DH: Our business is built on our customers’ trust. Whether we’re private or public, that’s super important to us. I think, to our customers, whether we’re private or public doesn’t change their view. I wouldn’t say that our philosophy changes as we get to bigger and bigger scale. As you can imagine we make big investments here. We have an awesome security team, our first cultural principle is be worthy of trust. This is existential for us.
TC: How’s the vibe now that longtime employees are going to have an opportunity to get rewarded for their work now that you’re a public company?
DH: I think everyone’s just really excited. This is the culmination of a lot of hard work by a lot of people. We’re really proud of the business we’ve built. I mean, building a great company or doing anything important takes time.
TC: Was there something that changed that convinced you to go public after more than a decade of going private, and how do you feel about the pop?
DH: We felt that we were ready. Our business was in great shape. We had a good balance of scale and profitability and growth. As a private company, there are a lot of reasons why it’s been easier to stay private for longer. We’re all proud of the business we’ve built. We see the numbers. We think we’re on to not just a great business, but pioneering a whole new model. We’re taking the best of our consumer roots, combining them with the best parts of software as a service, and it was really gratifying to see investors be excited about it and for the rest of the world to catch on.
TC: As you were on your road show, what were some of the big questions investors were asking?
DH: We don’t fit neatly into any one mold. We’re not a consumer company, and we’re not a traditional enterprise company. We’re basically taking that consumer internet playbook and applying it to business software, combining the virality and scale. Over the last couple years, as we’ve been building that engine, investors are starting to understand that we don’t fit into a traditional mold. The numbers speak to themselves, they can appreciate the unusual combination.
TC: What did you tell them to convince them?
DH: We’re just able to get adoption. Just the fact that we have hundreds of millions of users and we’ve found Dropbox is adopted in millions of companies [was enough evidence]. More than 300,000 of those users are Dropbox Business companies. We spend about half on sales of marketing as a percentage of revenue of a typical software as a service company. Efficiency and scale are the distinctive elements, and investors zero in on that. To be able to acquire customers at that scale and also really efficiently, that’s what makes us stand out. They’ve seen Atlassian be successful with self-serve products, but you can layer on top of that leveraging our freemium and viral elements and our focus on design and building great products.
TC: How do you think about deploying the capital you’ve picked up from the IPO?
DH: So, we’re public because they wanted us to be a public company. But our approach is still the same. First, it’s about getting the best talent in the building and making sure we build the best products, and if you do those things, make sure customers are happy, that’s what works.
TC: What about recruiting?
DH: It’s a big day for dropbox. We’re all really excited about it and hopefully a lot of other people are too.
TC: When you look at your customer acquisition ramp, what does that look like?
DH: I mean, we’ve been making a lot of progress in the past couple of years if you look at growth in subscribers. That will continue. We look at numbers, we have 11 million subscribers, 80% use dropbox for work. But at the same time, we look at the world, there’s 1 billion knowledge workers and growing. We’re not gonna run out of people who need Dropbox.
TC: What about convincing investors about the consumer part of the business? How did you do that?
DH: I think, when you explain that our consumer and cloud storage roots have really become a way for us to efficiently acquire business customers at scale, that helps them understand. Second, it’s easy to focus on how in the consumer realm that the business has been commoditized. There’s all this free space and all this competition. On the other hand, we’ve never lowered prices, we’ve never even given more free space, we know that what our customers really value is the sharing and collaboration, not just the storage. It’s been good to move investors beyond the 2010 understanding of our business.
TC: How did creating your own infrastructure play into your readiness to go public?
DH: When I say that today is the culmination of a lot of events, that’s a great example. We made a many-year investment to migrate off the public cloud. Certainly that was one of the more eye-popping investors watching our gross margins literally double over the last couple of years from burning cash to being cash flow positive. We’ll continue reaching larger and larger scale, and those investments will.
Dropbox made its public debut today, with the stock soaring nearly 40% on its first day of trading — meaning the company will now be beholden to the same shareholders that sent the company’s valuation well north of $10 billion.
As a file-sharing and collaboration service, Dropbox’s first principle is going to be user trust, CEO Drew Houston told TechCrunch after the company made its debut. This comes amid a tidal wave of information throughout the week indicating that data on 50 million Facebook users ended up in the hands of Cambridge Analytica several years ago through access gained via an app that was on the Facebook platform. While not a direct breach in the core sense of the word, the leaked data was a considerable breach of trust among Facebook’s users — and as Dropbox looks to crack into the enterprise and also continue to win over consumers, it’ll likely continue to have to increasingly emphasize security and privacy going forward.
“Our business is built on our customers’ trust,” Houston said, asked of its security. “Whether we’re private or public, that’s super important to us. I think, to our customers, whether we’re private or public doesn’t change their view. I wouldn’t say that our philosophy changes as we get to bigger and bigger scale. As you can imagine we make big investments here. We have an awesome security team, our first cultural principle is be worthy of trust. This is existential for us.”
Houston, and Dropbox, aren’t unfamiliar with some of the challenges that come into securing a service that has more than 500 million registered users. Dropbox in 2016 disclosed that it discovered a chunk of user credentials obtained in 2012 had been circulating on the Internet after an employee’s password was acquired and used to access user information. Dropbox, clearly, has recovered from that stumble and has pulled off a successful IPO, but it does underscore the challenges of not only maintaining security, but also user trust and political capital to actually get the business going.
In the end, that may come down to the trust of individual users. A large portion of Dropbox’s 11 million paying customers are, or started off as, the typical consumer. Dropbox’s playbook is a familiar one, first getting consumer adoption and using that to slowly creep into teams that use the tool because it’s easier than existing ones. Those teams adopt it, leading to further adoption, to the point that Dropbox in theory locks in a customer without having to pick up those direct partnerships or spend a ton of money on marketing. Should it stumble at step one, it would have a much steeper ramp to start acquiring the kind of enterprise companies that will help it build a much more robust business.
“We have this set of stated values in the company, and the number one value is literally, be worthy of trust,” Dropbox SVP of engineering, product, and design Quinton Clark said. I have observed and experienced that the protection of our users is very deeply woven in to the DNA of our company. This is why we encrypt the data at rest, in transit, and it’s why our user experience is designed to keep people down the path of keeping things secure by default. You see it in the tools we give admins and the events they look through. We’re very deeply committed to their privacy and security. We’ve never sold data, it’s not in our business model, it’s about the value people get in software.”
While Dropbox at its heart was born as a consumer company — and there are, indeed, hundreds of millions of consumers — it’s also morphed over time into one with an arm looking to crack big businesses. And now that it’s a public company, it will have more intense oversight from public investors who will be scrutinizing its every move and calibrating its valuation as a result of those moves. Dropbox, too, is moving onto its own infrastructure in order to improve its margins and show it can be an operationally efficient business. All this means that, if it’s going to be a successful company, it has to ensure the kinds of snafus like Cambridge Analytica, which sent Facebook’s stock off a cliff, don’t happen.
It’s surely a sign of public investor enthusiasm for the cloud storage business, which had initially hoped to price its IPO between $16 and $18 and then raised it from $18 to $20.
It also means that Dropbox closed well above the $10 billion it was valued at its last private round. Its market cap is about $11.1 billion.
Dropbox brought in $1.1 billion in revenue for the last year. This compares to $845 million in revenue the year before and $604 million for 2015.
While it’s been cash flow positive since 2016, it is not yet profitable, having lost nearly $112 million last year. But it is significantly improved margins when compared to losses of $210 million for 2016 and $326 million for 2015.
Its average revenue per paying user is $111.91.
There has been a debate about whether to value Dropbox, which has a freemium model, as a consumer company or an enterprise business. It has convinced just 11 million of its 500 million registered customers to pay for its services.
Dropbox “combines the scale and virality of a consumer company with the recurring revenue of a software company,” said Bryan Schreier, a general partner at Sequoia Capital and board member at the company. He said that now was the time for Dropbox to list because “the business had reached a level of scale and also cash flow that warranted a public debut.”
He also talked about the early days of Dropbox pitching at a TechCrunch event in 2008 and how disappointed they were that the slides stopped working during the presentation. The company has come a long way.
Accel was the next largest shareholder, owning 5% overall. Sameer Gandhi made the investment at Sequoia and then invested in Dropbox again when he went over to Accel.
Founder and CEO Drew Houston owned 25.3% of the company.
Greylock Partners also had a small stake. John Lilly, a general partner there, said he “invested in Dropbox because Drew and the team had an exceptionally clear vision of what the future of work would look like and built a product that would that meet the demands of the modern workforce.”
The prospectus warned of the competitive landscape.
“The market for content collaboration platforms is competitive and rapidly changing. Certain features of our platform compete in the cloud storage market with products offered by Amazon, Apple, Google, and Microsoft, and in the content collaboration market with products offered by Atlassian, Google, and Microsoft. We compete with Box on a more limited basis in the cloud storage market for deployments by large enterprises.”
Note that they downplayed their competition with Box, a company that’s often mentioned in the same sentence as Dropbox. While the products are similar, the two have different business models and Dropbox was hoping that this would be respected with a better revenue multiple. If the first day is any indication, it looks like that strategy worked.
The company listed on the Nasdaq, under the ticker “DBX.”
We talked about Dropbox’s first day and the outlook for upcoming public debuts like Spotify on our “Equity” podcast episode below. We were joined by Eric Kim at Goodwater Capital.
As Dropbox had its IPO moment this morning, more than 10 years after launching, we can finally put one myth to rest. Dropbox and Box were never targeting the same customers.
As Anshu Sharma, founder at Prekari, a stealth startup and former partner at Storm Venture tweeted earlier today:
If you are a VC and still don't get why Box and Dropbox are fundamentally different businesses, maybe stay away from SaaS. https://t.co/4O7Xks8Dbb
Same goes for investors, analysts and journalists. If you don’t believe they’re different, consider that in Dropbox’s S-1 paperwork they filed with SEC, you will note they didn’t even list Box as a primary competitor: “We compete with Box on a more limited basis in the cloud storage market for deployments by large enterprises,” the company wrote.
They had something in common, of course, but Dropbox has always been about purely about managing files in the cloud, while Box has been focused on enterprise content use case cases in the cloud — and that’s a very different approach.
As Shria Ovide pointed out in her analysis on Bloomberg after the filing, the S-1 also proved that Dropbox has always been a “a consumer software company with a side hustle.” That side hustle was the enterprise business. (She also pointed out on Twitter that they may be the first company to use a cupcake emoji in their S-1, which is actually kind of cool).
Consumer with a dash of enterprise
It turns out that vast majority of Dropbox’s revenue came from consumers. It added up to over $1 billion in combined business and consumer revenue, which isn’t too shabby, but it’s still a completely different approach. Dropbox has always offered an attractive consumer storage tool. It’s well integrated into desktop OSs and it has a nice mobile tool.
I use it and for $10 a month I get a terabyte of storage. I can back up my life there and it incorporates neatly into Finder on my Mac. When I capture screens they go automatically to Dropbox. It provides a place to backup my photos from my phone. It’s convenient and easy and it works.
It seemed that such a tool would translate nicely to business, but Alan Pelz-Sharpe, founder and principal analyst at Deep Analysis, who has been following this space for years, says Dropbox has always primarily been confined to teams on the business side. “Dropbox is primarily a consumer company with 500 million users, [with] only about 300,000 teams using their business offering,” he told TechCrunch.
That’s not to say they aren’t trying to capture more of the enterprise. In the weeks prior to the IPO, they made a pair of announcements designed to increase their enterprise credibility including one with Google to store G Suite documents natively in Dropbox and one with Salesforce to embed Dropbox folders in Salesforce Sales and Marketing clouds.
For now though, even with this business push, Pelz-Sharpe points out that most of Dropbox’s business customers are small teams of 3 or more people with a dash of larger implementations. “Nor are people building much on top of Dropbox in the way of business applications – it remains primarily a very efficient file sharing system,” he explained.
Differences with Box
This in contrast to Box, which has been working primarily with large enterprise companies for years to solve much more complex problems around content. Aaron Levie from Box said he’s absolutely rooting for Dropbox, but they have always been going after different markets, since Box decide to go enterprise about two years into its existence.
“We are fundamentally building two very different companies. Both are large markets. While there is no limit to the scale they could become, we have built a very different business around how do you serve [large companies] and deal with unstructured company data — and it’s a very different product set [from Dropbox],” Levie told TechCrunch.
Dropbox was off to a great start today with stock soaring, up nearly 40 percent in early trading, but however Dropbox ends up doing in the days and months ahead, they will do it having made their mark mostly as a consumer company — and that’s fine. If they continue to build their enterprise business over time, it will be all the better for them, but it turns out up until now, the only thing Box and Dropbox had in common was both had “box” in their names.
(@anshublog) 
It seemed that such a tool would translate nicely to business, but Alan Pelz-Sharpe, founder and principal analyst at Deep Analysis, who has been following this space for years, says Dropbox has always primarily been confined to teams on the business side. “Dropbox is primarily a consumer company with 500 million users, [with] only about 300,000 teams using their business offering,” he told TechCrunch.