Dropbox (DBX) IPO By The Numbers

Cloud storage company Dropbox (DBX) will make its debut on the public market Friday. Broadly considered this year’s first big tech IPO, demand for the company’s shares continue to outpace supply.

Accordingly, the company on Wednesday raised its IPO price range of by $2. Dropbox, which is selling 36 million shares, now expects the IPO to be priced in a range of $18 and $20 per share, up from its previous range of $16 to $18. This new range now puts the company’s market value at around $7.85 billion.

Analysts suspect that Dropbox may raise the price range yet again before the shares begin trading on the Nasdaq Friday. There’s also a chance that the offering could be increased by more than 5 million additional shares. That is, assuming underwriters, lead by Goldman Sachs, exercise their options to buy more stock.

As it stands, the company is expected to raise close to $750 million to $800 million, according to some estimates, making it the largest tech IPO since Snap (SNAP) debuted on the market just over a year ago.

Originally named “Evenflow," the San Francisco-based tech company was co-founded in 2007 by Drew Houston and Arash Ferdowsi. And it has quickly asserted itself as a leader within the fast-growing cloud market, specializing in the storing and sharing of documents, photos and files. The company boasts having some 400 billion pieces of content stored on its platform. And according to its Form-S1, filed with the Securities and Exchange Commission, Dropbox has over 500 million registered users, spanning 180 countries.

Of that 500 million users, 11 million are paying customers, accounting for just a little over 2%. The company has not shied away from that fact. "Our future growth could be harmed if we fail to attract new users or convert registered users to paying users," the company said as part of its risk factors in the filing.

But here’s the thing: As with cloud powerhouses Microsoft (MSFT) and Adobe (ADBE), Dropbox makes money by selling cloud subscriptions to their product. While the 2% paying members underscores why Dropbox isn't yet profitable, investors see the 2% number as an opportunity in terms of addressable market growth and product diversification, particularly given its robust growth rate.

The S1 notes that more than 90% of Fortune 500 companies are on the platform. And of that total, 56% of the companies have at least one paying Dropbox Business team (minimum of 3 users). The company, which saw 100 million users signed up on its platform since the beginning of 2017, has reported revenues of $1.11 billion, up 31% from the prior year. Notably, its annual recurring revenue, which is a prized metric in the subscription model, is growing at 28%, reaching $1.2 billion in 2017.

All told, as with most (if not all) IPOs, execution risk exists in terms of Dropbox’s long-term success. But it’s nonetheless encouraging that the company continues to narrow its losses and is cash flow break-even. As such, as long as the top-line remains healthy, combined with sustained cloud demand and product innovation, Dropbox will be successful. And so will the stock.

By Richard Saintvilus

Source: https://goo.gl/2tg5gq