Dropbox’s IPO and the importance of a coherent innovation strategy
Technology sector pundits should keep a close eye on Dropbox’s IPO, which took place on Friday: the markets are bearish due to a possible trade war with China and the recent Facebook scandals, but along with Spotify’s on April 3, the launch will give an idea of the outlook for the sector and market expectations. The numbers speak for themselves: at $21 a share, below the company’s last private valuation, was expected to be even lower, but rose due to strong demand from institutional investors, which obviously see the company as a good bet.
Dropbox’s share price rose more than 40% to $29 on Friday, and at the time of writing had settled to $28.48. Prices can fluctuate in the first hours of a launch and do not necessarily reflect the state of the company, but this is a company valued at more than $12 billion, and Dropbox has clearly come far in a short time.
The idea emerged at MIT in 2007 when one of its founders, Drew Houston, forgot to take a USB flash drive with the files he needed on a trip to New York and so together with his co-founder, Arash Ferdowsi, came up with a way to avoid such incidents based on the cloud. After a brief time with Paul Graham’s Y Combinator and decisive support from its first major investor, Sequoia, which after contributing significantly to each of its four investment rounds now stands to make a handsome profit.
With half a billion users, eleven million of them paid subscribers, and having seen off competitors such as Google, Microsoft, Amazon or Box.com, Dropbox’s value proposition is remarkably sophisticated and offers a new way of working, with very interesting collaboration tools and tight control over its technology, a policy that in 2016 led it to leave Amazon’s AWS storage services, which had hosted its users’ contents since it was set up, and to build its own network of data centers and infrastructure. This was a risky move, counter to the belief that “hardware is hard”, but that has saved it around $75 million so far and considerably boosted its profitability prospects, although for the moment, it is still a loss-maker. It lost $112 million last year, an improvement on the $210 million in 2016 and the $326 million in 2015, but revenues show healthy growth ($1.1 billion in 2017 compared to $845 million in 2016), and the company has had positive free cash flows since 2016.
In short, a successful company with healthy and sustained growth, and that just over a decade after its creation is now going public and that I like because of its strong and sustained culture of innovation, driven at all levels of the company and that clearly boosts its capacity to attract and retain talent and to have its own road map despite being surrounded by giants. Dropbox’s future will depend not so much on the cleverness of its initial idea, as on a brilliant, coherent strategy and retaining its culture of innovation. Let’s see what the markets have to say in the coming months and years.
(En español, aquí)
