Question

1. Dropbox, a cloud storage provider, plans to go public this year. It has set its valuation target at between $7 billion and 8 billion dollars. As one of the few richly valued tech startups to test the public markets in recent years, Dropbox's performance as a public company will be closely watched at a potential barometer for the more than 100 U.S. companies valued at more than $1 billion that still remain private.

Dropbox was founded by MIT computer-science students Drew Houston and Arash Ferdowsi in 2007. It now has more than 500 million users, most of whom use its free, basic service with limited storage. Dropbox has never turned a yearly profit. While the company's losses have been shrinking, its revenue growth has also slowed. It has roughly 11 million paying customers, but the vast majority of its 500 million users do not pay.

Why has Dropbox been successful as a business? What do you think about the Dropbox's long-term future given the competitive environment it faces? How going public benefits Dropbox rather than remaining a private company? If you were an investor, would you invest in Dropbox's IPO? Why or why not? Please discuss.

Answer 1

Dropbox has been successful as a business because of many reasons. Firstly the company, though started small, was able to scale up rapidly. The achieved the feat of 100 million users in just 4 years after their launch. Secondly the company has been a lean startup offering a minimum viable product. This is not a final product but is used to show people the idea behind the product. The company then constantly added features and improved its product. The company also allowed integration across platforms and added a feature in which consumers looking for more space had to invite their friends. This led to more number of users.

Dropbox’s long term future looks promising has it has built itself a strong foundation as discussed above. The company has a good business model and offers a good product and this will give the company competitive advantage. All these will ensure long term success for the company.

Going public will benefit Dropbox to have access to funds which they can use to introduce newer products, make more investments in research and development and further innovate. This will eventually lead to higher revenues and profitability in future.

Yes, as an investor I would invest in Dropbox’s IPO. Even though the company has not turned a yearly profit it does generates positive free cash flow year after year. This is a big plus for this company. The company would innovate further using cash proceeds from the IPO and this augurs well for the company’s future.