IPO

Dropbox Dropped Valuation Shows Unicorns Reining in Horns

The unicorn is a mythical beast. Where magic abounds.

High flying, or maybe not.

Possibly not, when it comes to valuation.

The news this week that Dropbox, the file sharing firm, is coming public at well below the $10 billion it had seen in its latest fundraising round has raised much discussion about valuation.

Because, of course, the numbers tell a story. The company’s filings show that Dropbox aims to come public at a range of $6.3 billion to $7.1 billion, excluding restricted stock units.

That is a far cry from the $10 billion implied when it came to private markets in 2014.

Now, a roughly $6.5 billion valuation is nothing to sneeze at, considering that unicorns are defined as those firms that have pushed past the $1 billion threshold.

The IPO market is healthy thus far into a new-ish year, and in January companies came to the public markets and raised $8 billion. That pales in comparison to the $25 billion via Alibaba’s September 2014 offering (and that is just one company), but still a decent pace.

Said Bloomberg on Tuesday (Mar. 13), the difference between the $10 billion and the $6.5 billion valuations spotlights the difference in investor profiles, then and now. The private markets seem willing to pay up in tandem with high expectations for innovation and growth. The public markets seemingly find relative pause in the numbers.

Dropbox would still be the third largest IPO in the States, via the enterprise technology sector across the past three years. The company is also selling $100 million of its stock to Salesforce’s VC operations. Salesforce and Dropbox are in a relationship where the former’s CRM offerings work with the latter’s storage tech.

At $16 to $18 a (class A) share, Dropbox seems to be lowering its sights a bit coming to market. But might this be an overabundance of caution? Perhaps dry kindling that would ignite upon the actual offering, slated for Friday?

It may be the fact that a swiftly growing top line just doesn’t cut it anymore. Amid 500 million registered users, revenues are growing by 30 percent, measured by 2017’s tally of $1.1 billion – and yet red ink still abounds, at $112 million.

Using a simple metric, price to sales, assuming $6.5 billion market cap upon coming to market, the metric is a little less than 6x. And yet places like CSIMarket show similar measurements at 4x. Meanwhile, Dropbox has to contend with Google and Microsoft – bigger companies, of course – that might make that red ink tougher to turn to black.

The ghosts of Snap and Blue Apron’s busted IPOs hover nearby. Not a certainty, but a haunting nonetheless.

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