Snap, Dropbox: It’s an IPO waiting game
This year’s IPO market is already underwhelming me. Given the pronouncements (a sampling: “The drought is over… a torrent of tech IPOs is expected in 2017” and “A Thousand Tech IPOs Will Bloom”) I showed up to the office this week expecting to see a line of stuffy tie-wearing public market investors creating a much-needed downpour, emptying their pockets into a rising stream of money, flooding the streets of San Francisco. I thought I’d see venture capitalists, long thirsty for liquid returns, dipping their wallets into the current, taking their fill. I thought I’d see unicorns with their financials finally out in the sunlight, horns in full bloom.
Is that something unicorn horns do? Anyway, it’s been raining here but not money. Not yet. I realize it’s too soon to be disappointed. I’m just sensitive to optimistic IPO predictions. A year ago, investors were drumming up hype for more IPO volume, if not better returns. Many reasoned that 2015 had been slow, so how could 2016 be worse? Apparently, life doesn’t always work out the way you expect.
I’m not saying this year won’t be the tech bonanza many are hoping for, but I remain cautious.
There’s a lot that has to happen before investors celebrate. For instance, I just got off the phone with a venture capitalist I very much trust. We talked through Reuters’s smart list of 2017 software IPO candidates. While useful, it’s still littered with question marks. One company (Anaplan) still needs to find a new CEO. Another (Apttus) is in a precarious scenario since Salesforce.com acquired its competitor SteelBrick. This investor said he expected at least two other companies on the list to try to shop themselves, rather than face the scrutiny of the public markets. Still, the list was missing plenty of his companies, which he thinks could go public this year. Of course he does.
Outside the enterprise software world, at least two companies will probably dominate the headlines this year: Dropbox and Snap Inc. (Spotify is another contender.) While Snap is moving fairly aggressively for a five-year-old startup, Dropbox is a long time coming. Some estimates for the decade-old company put its public market capitalization at $3 billion to $7 billion. Its rival Box is at $1.9 billion and serves as a primary public market comp. Dropbox gets bonus points for a reported $750 million revenue run rate and for being cash-flow positive. (It will be interesting to see how Dropbox has incorporated its transition from Amazon Web Services to its own servers into its financials. That will have a big impact on profitability. Perhaps we’ll find out the answer soon.)
Snap Inc. might be valued at as much as $40 billion. Bloomberg Gadfly’s Shira Ovide puts it in the $25 billion range and has a bunch of interesting charts explaining why. People would definitely be disappointed if it fell below its current $20 billion private valuation.
But Snap has a lot of hurdles to jump through before it can have a successful IPO.
The company faces a new lawsuit from a former employee who claims that the company has inflated its metrics ahead of its IPO. Snap said the lawsuit is without merit.
Snap will also have to figure out how to navigate its employees’ big impending tax burden. Alfred Lee at the Information outlines Snap’s options. Most importantly, Snap still needs to figure out whether it will sell self-serve ads or rely on a mostly human sales force. With the tough economics of media weighing on another buzzy venture-backed startup this week, that seems like a big question. No one knows the answers. You might as well ask the weatherman.
