#8 Dropbox and Spotify IPO’s 📈 🦄

Earlier this year, two of the largest unicorns, Dropbox and Spotify, filed for initial public offerings. Dropbox followed the traditional route, seeking to raise $756mn on its 23 March IPO, with an expected valuation of $8.2bn. This would make it the largest IPO since Snap, and one of the 10 largest venture capital-backed exits since 2009. Meanwhile, Spotify debuted at double the size of Dropbox — initiated a direct listing of its shares on 3 April.
The question, however, is the shortage of profitable unicorns — Dropbox, in its 11 year, posted $1.1 billion in revenue last year but a $111.7 million loss — and an abundance of late-state private funding. With its $95 billion fund, SoftBank Group (9984.Japan) alone could provide the equivalent of three years’ worth of U.S. IPO funding. Dropbox competes with much larger companies such as Alphabet Inc’s Google, Microsoft Corp and Amazon as well as main rival Box Inc. It long struggled to monetise a product that many of its larger rivals offer for free and moved to offer more products for businesses, such as file synch and group collaboration tools.
There are risks aplenty for investors. Spotify, which reported $4 billion in revenue in 2017 but a $1.4 billion loss, is still unprofitable, despite having 70 million paying subscribers — an unevenness that makes some industry experts balk. Other music-streaming companies, like Apple Music, meanwhile are gaining on Spotify, making its market share uncertain. The challenge the company now faces is how to monetise non-paying customers more effectively, while paying out royalties to the various record labels for content at the same time
Do you expect late-stage financing to continue to flourish for private companies — meaning that Uber, Airbnb and others will continue to stay private?
The late-stage financing market is still flush with capital. This market will continue to provide a source of capital and secondary liquidity to unicorns that aren’t ready or do not want to go public. Private-company valuations will eventually converge toward expected public-company valuations, as that is the eventual path for many.
