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Is it a good time for Dropbox to list?

The file sharing company Dropbox has applied to list shares in an IPO that is expected to be the biggest market debut since Snap Inc came to the market last spring. But is it a good time to list a company that has yet to make a profit?

Jeremy Naylor @JeremyNaylor_IG
Analyst, London

Publication date : 2018-03-06T12:34:06+0000

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Experience has shown that tech companies that have at the time of listing not made a profit, can develop and bring shareholders big returns. Facebook, Google (now Alphabet), and Amazon are all excellent examples. But what of the likes of Snap Inc (All Sessions)? Shareholders have only just returned the share price to levels that are above its initial listing.

Competitors in the digital space arena almost all have other businesses to make money. Apple, Amazon, Microsoft and Google all offer limited space as a free add-on to a money making business model. Despite being the first in its space, Dropbox must expand or die.

Recent experience with one of the company’s only direct competitors, BOX Inc (a cloud based file storage and sharing service) has not been good. While it is no longer in the consumer space, having shifted its focus to business customers, it has recently seen it shares drop into the bear market category, falling 23%, a warning about its future earnings. Its founder and CEO, Aaron Levie, has outlined plans to expand the company into other areas to keep it ahead.

On the back of this recent experience, is the Dropbox board having any qualms about the timing of its initial public offering (IPO)? It may have had the discussion, but what is certain is that it will have to expand and develop, or face the consequences. Part of this will be to find ways of encouraging users of its ‘freemium’ model, where it offers free space for users which the company then encourage to upgrade and pay to increase user capacity. Of its 500 million users, only 11 million of those are paying for the service. This has to change.

First mover advantage, that Dropbox had, has evaporated, and with the likes of BOX Inc expanding its offering, it will be interesting to see what is in the offer document when it is released.

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