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Dropbox needs to be seen like Atlassian, not Box, to avoid a downround IPO

The company disclosed key financial information in its S-1 filing.

Drew Houston, founder and CEO of Dropbox
Drew Houston, founder and CEO of Dropbox
Drew Angerer / Getty

Is Dropbox poised to be valued on public markets less than it’s valued on private ones? Depends on your point of comparison.

Dropbox on Friday disclosed reams of financial information in its S-1 filing as it prepares at long last to go public. The big question over the next few weeks — in advance of the company share price being set by bankers — is whether the company will meet its $10 billion valuation set during its last round of private financing in 2014.

The smaller question: Which company can we compare it to? Should we think about Dropbox in the way we think about Box, the publicly traded cloud-storage company? Or is it more like Atlassian, the successful workplace collaboration company that offers a more friendly point of comparison for Dropbox investors?

Dropbox said Friday that it booked $1.1 billion in revenue last year. If the best point of public-market comparison is Atlassian, which has a revenue multiple of about 15, then Dropbox could be valued at over $16 billion on public markets. If the point of comparison is Box, then Dropbox is staring at a downround IPO that would value the company at under $7 billion.

Dropbox, founded by Drew Houston in 2007, will be one of 2018’s marquee IPOs along with Spotify — both of which are expected to appear on public markets in the early spring. Several other high-flying Silicon Valley companies — from Uber to Airbnb — are no doubt watching closely how Dropbox performs as they mull when to time their own public offerings.

Dropbox’s IPO will be a windfall for a series of early investors; because the company took relatively small amount of outside capital, a few shareholders own unusually large percentages in the company. Houston, the CEO, owns about 25 percent of the company, according to the documents, and Sequoia Capital owns about another 25 percent.

Dropbox will also be the first IPO for Y Combinator, the accelerator program that has become a hallmark of Silicon Valley promise.

The company said it had over 500 million registered users, but only 11 million of them are paying. Average revenue per paying user was $112 in 2017, just a 1 percent increase over 2016. That’s a statistic that the company acknowledges it needs to improve.

“Our business depends on our ability to retain and upgrade paying users, and any decline in renewals or upgrades could adversely affect our future results of operations,” the company said in the filing when referring to one of its “risk factors.”

Still, the company lost $112 million last year — though that figure has been improving year over year. The company also impressively posted $305 million in free cash flow in 2017 — far better than Box, which had only a positive free cash flow of $6.3 million in its latest quarterly filing at the end of 2017.

Exact pricing on the shares will arrive in the upcoming weeks from Goldman Sachs and JPMorgan Chase, who are leading this IPO.

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