Ten Fast Facts About Dropbox as It Seeks an Initial Public Offering

Dropbox is finally ready to enter the public market. The San Francisco-based file sharing and cloud storage company plans to raise up to $500 million in an initial public offering, according to paperwork filed with the SEC last week, after years of speculation that it might do so.

Founded by two MIT students in 2007, Dropbox has since become synonymous with online file storage, though the company has plenty of competitors, from big businesses such as Amazon (NASDAQ: AMZN) and Google, to smaller startups such as Box (NYSE: BOX). It’ll be one of the most heavily scrutinized IPOs in recent years, since the success or failure of Dropbox’s IPO could provide insight into the market’s true view of the high valuations of Silicon Valley startups.

Dropbox has quite a few notable investors, including Sequoia Capital (23.2 percent stake) and Accel (5 percent of total outstanding shares). CEO and co-founder Andrew Houston owns 25.2 percent of the company..

Here are ten facts (an homage to the band that gave Dropbox its original rock-influenced name, but more on that below) from Dropbox’s first IPO filing to help get you acquainted with the nuances of the company.

1. “To date, our users have added more than 400 billion pieces of content to Dropbox, totaling over an exabyte (more than 1,000,000,000 gigabytes) of data.”
—While Dropbox once relied heavily on Amazon and its AWS service for data storage, the company began in to build out its own data centers, storage software, and overall cloud computing capabilities in California, Texas, and Virginia, where it now stores the much of those millions upon millions of bytes of data.

2. “We’ve built a thriving global business with over 11 million paying users. Our revenue was $603.8 million, $844.8 million, and $1,106.8 million in 2015, 2016, and 2017.”
—That’s an 83 percent increase between 2015 and 2017. Clearly, those revenue numbers show that Dropbox has had some success in “upgrading” free users to paying ones.

3. “We generated net losses of $325.9 million, $210.2 million, and $111.7 million in 2015, 2016, and 2017, respectively.”
—Is that increase in paying users enough? Dropbox says its paying users increased to 11 million in 2017 from 8.8 million and 6.5 million in 2016 and 2015, respectively. The company still reported a $111.7 million net loss in 2017, however. With more than 500 million registered users, it has a small percentage of paying users—though the company would argue that means it has plenty of room to convert more. Dropbox has customers in 180 countries, and about half are in the U.S.

4. “We estimate that approximately 300 million of our registered users have at least one characteristic that we believe makes them more likely than other registered users to pay over time.”
—Dropbox, it seems, has high aspirations. The company says those “characteristics” that make users likely to pay are specific email domains, devices, and geographies, though it doesn’t provide further detail about why it makes that conclusion. Dropbox doesn’t spend money on external marketing, and instead reaches out directly to users who access its website or its apps.

5. “Research and development expenses increased $90.6 million, or 31% during 2017, as compared to 2016, primarily due to an increase of $64.7 million in employee-related expenses, which was due to headcount growth.”
—Dropbox is deploying resources to come up with new ideas. The company had 1,858 employees as of Dec. 31, 2017, and 870 of them work in research and development.

6. “We have experienced an increase in our (free cash flow) as a result of an increase in net cash provided by operating activities, primarily due to our Infrastructure Optimization … We expect to continue to realize benefits from expanding our internal infrastructure due to our operating scale and lower unit costs.”
—Even if a business reports a net loss, it can still have high levels of free cash flow—leftover cash from operations after it spends on infrastructure and other big costs—which is something that investors and lenders love to see. Dropbox reported negative cash of $64.9 million in 2015, and positive free cash flow of $137.4 million and $305 million in 2016 and 2017. The company believes that cash flow will continue thanks to its decision to build its own data infrastructure.

7. “We were incorporated in May 2007 as Evenflow, Inc., a Delaware corporation, and changed our name to Dropbox, Inc. in October 2009.”
— Dropbox may indeed be the better way to brand a file-sharing service, and Evenflow might be best left to the music business. Pearl Jam’s song “Even Flow” from its 1991 album “Ten” was reportedly the influence for Dropbox’s original name.

8. “As of December 31, 2017, Dropbox was receiving over 50 billion API calls per month, and more than 500,000 developers had registered and built applications on our platform.”
—Businesses build on top of other businesses, and Dropbox is no different. Software-as-a-service companies in particular look to capitalize on vast user bases like the one Dropbox has, as you can see with the number of developers who build applications related to Dropbox’s service.

9. “…approximately 56% of Fortune 500 companies had at least one Dropbox Business team within their organization.”
—Dropbox has a diverse customer base. Expedia is one Fortune 500 company that Dropbox lists as a client. Its clients also include sports organizations like the Golden State Warriors and nonprofits like World Bicycle Relief.

10. “The principal purposes of this offering are to increase our capitalization and financial flexibility, create a public market for our Class A common stock, and enable access to the public equity markets for us and our stockholders.”
—Maybe Dropbox is taking the opportunity for an IPO while it can. The company also says it may use proceeds from the IPO to pay down debt, for possible acquisitions, and general corporate purposes.

David Holley is Xconomy's national correspondent based in Austin, TX. You can reach him at dholley@xconomy.com Follow @xconholley

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