Breakingviews - Dropbox stores good news for tech IPOs

The Dropbox app is seen in this illustration photo October 16, 2017. REUTERS/Thomas White

NEW YORK (Reuters Breakingviews) - Dropbox’s initial public offering stores good news for upcoming tech floats. The online-storage firm’s shares rocketed about 50 percent in its first hours as a public company. The rousing welcome for a $12 billion tech firm aimed at consumers is heartening for Spotify. And it could accelerate IPO plans for firms like Airbnb and Lyft.

Dropbox is big – even in 2015 a funding round valued the firm at $10 billion. Plentiful capital has allowed Uber, Airbnb and dozens of smaller firms to raise substantial sums without going public. However, these so-called unicorns – private companies with a valuation of $1 billion or more - can face a tougher reception when they market a greater chunk of their stock in a float. Selling shares at a lower headline valuation can be a problem, as employees with underwater options may flee. It also creates the impression of a firm going backwards. Dropbox doesn’t have this worry after its debut.

Moreover, it’s a consumer play. Sure, Dropbox sells to enterprises. But it has more than 500 million users and no customer accounts for more than 1 percent of revenue. The opportunity is converting free users into paying ones - only about 2 percent currently stump up for the company’s service. However, Amazon, Google and Apple also want these customers.

Friday’s reception implies investors are focused on opportunity. Dropbox is valued at close to eight times 2018 revenue, assuming it continues to grow at about the same rate it did in 2017. Rival Box, aimed at the enterprise market, is valued at about five times.

This may indicate a shift from last year, when tech firms aimed at stable enterprises tended to be greeted more warmly than fickle consumer-focused ones. For example, data-analytics firm Alteryx and online-security firm Okta have more than doubled since their floats, while social network Snap and meal-delivery service Blue Apron have lost about 5 and 80 percent of their respective IPO prices.

This is good news for tech firms in the IPO pipeline. Online music firm Spotify and ride-hailing service Lyft have been valued at about $19 billion and $12 billion respectively on private markets, are harnessed to consumers and are close to going public. Airbnb, Pinterest and Uber Technologies have lagged somewhat behind. Dropbox’s success may speed up big tech offerings.


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