January 11, 2018
Alex Wilhelm is the Editor in Chief of Crunchbase News, covering the intersection of startups and money.
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According to Bloomberg, Dropbox has confidentially filed to go public. The firm intends to list in the first half of 2018.

The news makes it the second well-known unicorn to have filed paperwork for a 2018 debut, with Spotify in the hopper since December of last year.

Last July, I wrote about Dropbox’s upcoming IPO when it was reported that the firm was looking for bankers to help with the transaction.

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To say that Dropbox’s public offering is long-expected would be an understatement.

Even more, Dropbox’s impending IPO raises a host of questions concerning the popular filesharing and productivity company: How well has it managed its move into the enterprise space, and how dependent does it remain on consumer revenue; how close is it to GAAP profits after reporting cashflow positivity; and how much of its touted $1 billion (Jan’17) run rate can be counted as trailing top line?

Those metrics will help set the company’s value, last pegged at $10 billion after a $350 million Series D raised in 2014.

What the firm will be worth in a public offering is a parlor game for Silicon Valley.

After all, Dropbox is a bit of a bellwether for the current crop of unicorns: it’s been private for longer than historical norms (Dropbox was founded in 2007.), richly valued, and has a history of less-than-perfect cost control. Its path to an IPO could draw up a path for other firms of its vintage and value.

But what might Dropbox be worth? Let’s list what we know.

Dropbox’s Numbers

As previously linked, Dropbox announced that it reached the $1 billion recurring revenue milestone in January of 2017. We’re calling that the firm’s annual recurring revenue (ARR) result for simplicity. It’s likely close.

If the firm had reached the threshold that particular day or week is unlikely. But it seems fair to say that in the opening weeks of 2017, Dropbox reached the $83.3 million-per-month revenue mark.

But that was merely one of the firm’s most-recent financial dispatches. As I recorded last July:

When you draw a line through those particular points on a graph, the slope points to an IPO, making today’s news hardly surprising.

Previously, we did some simple calculations to find out, at the $1 billion ARR mark, what Dropbox would be worth using a market comp’s (Box) own revenue multiple. However, it is now just about a year since the firm announced the $1 billion figure. So we need to push it up by Dropbox’s growth rate and then re-run the math.

So, how quickly is Dropbox growing? According to this BusinessWeek story from last August, this quickly (emphasis added):

Market value remains the focus of the increased scrutiny. In 2014, when backers last invested, they agreed Dropbox was worth $10 billion. People familiar with the company’s financials say it could top that mark in an IPO, but that may be a tough sell. Still, they say, annual revenue growth is enviable, about 30 percent. Dropbox declined to comment.

This helps quite a lot, as it allows us to better estimate Dropbox’s current ARR pace, and, thus, get a crack at its valuation.

In short, we’ll take the firm’s revenue, boost it by the above-reported growth pace, and then slap Box’s comparable revenue (ARR) multiple to get a decent handle on what Dropbox might be worth. We will presume similar profitability metrics and growth pace, which we’ll handicap directly afterwards.

Here is where that leaves us:

  • Dropbox January 2017 ARR: $1 billion.
  • Dropbox mid-year reported growth rate: ~30 percent.
  • Dropbox January 2018 ARR estimate: $1.3 billion.
  • Box market cap January 11, 2018: $3.03 billion.
  • Box’s most recent quarter’s revenue: $129.3 million.
  • Implied Box ARR: $517.2 million.1
  • Rough Box ARR multiple: 5.8x.

Having done all that, we can gist out that Dropbox, at a $1.3 billion ARR pace, would be worth $7.5 billion.

That is far under its previously-noted $10 billion private valuation. (A testament, perhaps, to private-market investors pre-buying growth a bit too far out in the future at the time.) However, it remains a healthy sum. Early backers of the firm will do incredibly well at that price, it would seem.

Box’s Kindness

Something to keep in mind in the above is how far Box has recently recovered in the public markets, something that has taken quite a lot of stress off of Dropbox.

Box traded under $10 per share in 2016. The firm, now pennies under $22 per share, has seen its equity dramatically rebound. Of course, over the ensuing time period, Box has grown as well. But its revenue multiple has undoubtedly improved.

And that’s good for Dropbox. If the still-private company deserves a premium to Box’s metrics remains to be seen. The numbers will bear that out. But if Box was trading at its prior multiples, it would have been a far heavier lift to reach a public-market valuation that it would have liked.

The math seems to imply that Dropbox is worth billions of dollars, but perhaps a few billion under its last private valuation. But what we don’t know is how far the firm has gone towards profits and how much growth it can jam into the next quarter or two.

  1. We don’t have monthly Box revenue data, so we’re using is most recent quarterly revenue figure, times four, to get an annual number. Of course, not every dollar of Box’s top line recurs, but it’s about as close as we can get for a publicly traded security, in Dropbox’s market space, of similar size, that has mostly recurring revenue. So we’re doing our best.

Illustration: Li-Anne Dias