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Dropbox: An IPO To Watch

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What happens when a company that’s losing money more than ten years after its launch goes for an IPO to raise $500 million?

We’re about to find out, with Dropbox’s announcement on 23 February that it will raise $500 million in an IPO, for which it filed confidentially in January.

Dropbox is losing money—yes, but it’s growing and losing less and less year-on-year.

Now that’s its filed for an IPO, we can see the financials. In 2015, it’s revenue was $603 million. Last year, revenue was $1.1 billion. It’s been operating at a loss throughout, but let’s compare: In 2015, it recorded a loss of $326 million, while last year’s loss was $111.7 million.

It’s also been making some cost-saving measures that investors should appreciate. When it first started out, it was running on Amazon’s cloud computing service—now it has its own, which some say saved it $75 million over two years.

Paying subscriber numbers have continued to grow nicely, nearly doubling over the past two years to 11 million. While this is where most of its revenue comes from, it’s also trying to shift to focus on businesses, but hasn’t made great headway on that. So technically, there’s a lot of room to grow, even if the way forward isn’t crystal clear and even if we haven’t seen any significant changes in the product in a decade. Related: Vicious Trio Keeps Bitcoin in Chokehold

But is it good enough? Competition will be stiff, and the threats are numerous: Amazon, Apple, Google, Microsoft and even some smaller companies could derail Dropbox.

To get a better idea, we have to look at the incubator—Y Combinator, which has a number of big companies in its portfolio, including Strip and Airbnb. But Dropbox will be the first to go IPO. Y Combinator helps to incubate these companies in tangible ($120,000 investment) and intangible (advice, consulting) ways. In return, Y Combinator gets a 7 percent stake in the company, according to Quartz.

What no one wants is another SNAP IPO disaster. SNAP didn’t offer its investors any voting rights and gave a huge stock reward to the CEO and co-founder. It failed to deliver on all the hype and is still struggling with these mistakes. It’s a classic example of an IPO drowning in exalted expectations.

And hype continues to wreak havoc. Most recently, last week, it showed its vulnerability to a one-off tweet from Kylie Jenner that lost it $1.6 billion instantly. Jenner said she had grown bored of the photo-sharing platform. That’s all it takes.

Dropbox is not likely to be quite as vulnerable to this kind of hype, positive or negative. Related: One Belt, One Road, One Direction for Precious Metals

And Dropbox isn’t making the same mistakes as SNAP, if its prospectus is anything to go by. It will offer dual-class shares at least, though voting control goes to the co-founders. It will also offer class A shares to the public, with one vote per share. Class B shares get 10 votes each and are led by Drew Houston (CEO and co-founder) and Sequoia Capital. Together they have more than 50 percent of the current voting power.

So far, there’s not a lot of hype, so the crash and burn affect could be avoided.

By David Craggen for Safehaven.com

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