Speculation has grown in recent months that an initial public offering (IPO) for Dropbox could be imminent, with reports that the company has already discussed the possibility of an listing in 2017.
Dropbox founder Drew Houston has neither confirmed nor denied the rumours until now, but he has made some revealing remarks on the merits of each option.
"To build a great public company, you want to build a great company first, so that's what we're focused on," he told reporters at the company’s London offices last week.
“It ends up being more of an implementation detail or capital-raising detail in some ways, but it's a pretty complex package deal, where on the one hand through public you can get all the liquidity you need and access to the capital markets [...] and all the other reasons that people go public.
“But yeah, it also comes with a lot of expense and overhead and distraction and can draw your focus away from the long term.“
Competition in the market
Dropbox's arch-rival Box made the switch in January 2015, 10 months after its original S-1 filing. The company presold its stock at a bargain IPO price of $14 and saw the stock soar initially, but it soon dropped back down. It was trading at $14.73 a share as of 5 December.
Tech companies in general have endured volatile public listings recently, as investors shift towards safer bets. IPO listings have been notably lacking in 2016, as the overpriced funding rounds that precede public listings limit potential profit for investors.
Houston will have watched his adversary’s turbulent experience with interest. Dropbox has faced its own accusations of being overvalued at the $10 billion figure it was awarded in a 2014 funding round, and he admitted that staying private brought benefits of its own.
“We alongside other companies have been able to access, or get a lot of benefits of accessing the capital markets or have been able to get some of the same shareholders," he says, pointing to institutional shareholders Fidelity and T Rowe Price that have long-term interests in Dropbox.
“We've been able to do things like meet our community needs and meet our financing needs through the private markets, and then we've found investors to be pretty excited about participating earlier in the company's progression even if we're not public."
Dropbox has enjoyed a year of significant milestones. The company crossed 500 million registered in 2016 and 200,000 paying customers. It also turned cash-flow positive in April, a major investment landmark.
"As we like to say, we are funded by our customers these days much more than our investors," says Houston. "Being free cash-flow positive is an important step on the way to being profitable."
The 33-year-old confirmed that Steve Jobs had called Dropbox a feature not a product when they told him the company wasn’t for sale in 2009. Houston remains bullish on the business’ financial prospects.
“If having half a billion users and the business we do is a feature, then I'm happy to have a feature," he says.
The vast majority of the company’s revenues is either self-serve or very light touch, said Dropbox COO Dennis Woodside. The monetisation model is more akin to that of Slack than the conventional, sales-heavy approach of the aforementioned Box, he added.
“Our view is over time, the combination of scale and innovation will create a winning company and create ubiquity that makes Dropbox a more attractive choice,” he says. “That ubiquity has it's own value over time."
The comparison with Slack is especially notable. Dropbox is making a concerted effort to move from file-sharing to collaboration.
'It's evolving from keeping files in sync to keeping teams in sync," says Woodside. "Dropbox is increasingly a place where people get work done, it's where they talk. It's not just about storage, it's really about the sharing."
The partnerships that Dropbox has built up in recent years give it a good head start. Dropbox is now integrated with products including Office 365 and Adobe Acrobat and "several hundred thousand" other partners including the aforementioned Slack.
Dropbox has established two key objectives to succeed in its strategy. The company wants to both create a unified content home for work teams, and build a more collaborative experience around files.
The latter objective will be spearheaded by Dropbox Paper, the company's new real-time collaborative document editor that is currently in beta.
What makes Paper different from other collaborative document editors such as Google Docs, says Houston, is its variety of features and integration with other products and files.
"You can embed a Photoshop file in there, you can embed a bunch of photos in there, you can embed a Google Doc in there," he explains. "Paper is a great example of how we can tie together all these different ecosystems and start to lay down the tracks to be able to search across all these different cloud platforms."
The nature of file-sharing is changing fast. The growth in smartphones, bring your own device (BYOD) policies and remote working is creating new challenges for data access in businesses.
Dropbox hopes Paper will help propel them towards a prominent position in the growing market for collaborative tools, whether the company goes public or not.
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