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Dropbox's Wall Street Challenge

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编辑: 1   作者: Techcrunch   时间: 2019/6/11 14:48:07  

Dropbox boasts a valuation in the $10 billion range. Last February the company hired a new CFO, which for many startups is a signal that their IPO moment is coming sooner rather than later. Nobody knows for sure of course, and Dropbox isn’t talking, but if the company does decide to move forward with a flotation, it could face several challenges in spite of its strong market presence.

For starters, last week, tech stocks got dragged to the woodshed by Wall Street in a market that has turned ever more skeptical about growth over profits. Against this backdrop, any tech company thinking about an IPO, may want to hunker down until the bankers are in a better mood.

Should that happen, Dropbox could still have trouble persuading a doubtful Wall Street money machine, which has shown little love for cloud companies, that it can overcome several hurdles:

  • For starters, it will need to convince them that the subscription business model with a different reporting methodology is viable.
  • It must defend its hybrid consumer/enterprise approach - and perhaps face questions where it will concentrate its resources moving forward.
  • Finally, the company with its core business in storage and file syncing has to find a way to overcome the commoditization of these services and the race to the bottom with some of the biggest names in the business.

Those issues aside, Dropbox has a lot going for it. It didn't secure a $10 billion valuation for nothing. It’s a hot cloud company that has raised over a billion dollars. It claims over 400?million registered users?with 8 million companies using the service. It put file sync and share on the map and has changed the way we exchange files.

That kind of traction should mean the company is capable of overcoming anything we outline here, but it may have some educating to do on Wall Street whenever it decides to move forward with an IPO.

The Subscription Business Hurdle

Dropbox sells its consumer and business products on a recurring basis. As you have heard myriad times by now, companies that sell digital services using a subscription model - SaaS shops, in other words - collect revenue over time, and record costs up front.

That means that as you grow as a SaaS company, you are building a predictable revenue stream over time, in the face of often stiff losses as growth ROI has yet to catch up. It’s a fine model, provided that a startup doesn’t overpay for new accounts, and that those accounts eventually generate a multiple of their initial cost to acquire. (Or, if you prefer the boring version, it’s a fine model if your gross margins are in the eighty percent range, and your LTV to CAC ratio is greater than three.)

Dropbox’s consumer business evolved last year, when the company lowered the price it charges for storage; in the face of crashing storage costs, other providers of cloud storage offered dramatically lower prices. Dropbox put off lowering its own prices, but eventually had little?choice but acquiesce. We’ll touch on the price question in a moment, but keep in mind that Dropbox’s consumer mind and market share are important tools to get Dropbox into corporations that may become enterprise customers.

So, Dropbox couldn’t afford, somewhat ironically, to abandon competing for consumer share as that could have added friction to its enterprise sales process.

That brings us to Box. Given that the Dropbox ‘For Business product competes with other EFSS players that sell into the enterprise, we can use market analogs to grok how public investors are valuing SaaS firms at current tip. So, Box. And things don’t look great: As of Friday, Box is trading?just above (barely)?its $14 per share IPO price.

So, despite Box posting better-than-expected financial performance in its most recent quarter, and boosting its full-year guidance, shares in the popular firm are trading at all-time lows.

Venture capitalists love the predictability of SaaS revenue growth. But when public investors are spooked, positive cash flow can be even more attractive.