Dropbox cofounder and CEO,
Drew Houston
Dropbox

  • Dropbox is aiming to have its IPO in the first half of
    2018, according to reports.
  • Analysts aren’t at all surprised, but have a few things
    at front of mind when it comes to anticipating how Dropbox will
    do as a public company.
  • The market for collaboration tools is huge, analysts
    say, but Dropbox needs to focus in on appealing to enterprise
    customers. 

Dropbox has earned a consumer-friendly reputation by making it
easy for non-techies to store family photos, school homework and
other digital knick-knacks on the popular online service it
launched ten years ago.  

But as the company prepares sell shares to the public in an IPO,
it will need to button-up its image and win the favor, and the
budgets, of picky business customers, according to analysts who
follow the company. 

The simple function of storing
content is pretty well commoditized now and most of the people
who are going to use that function are already using it,” said
Terry Frazier, a research director at industry research firm
IDC.

The big growth for Dropbox, he
says, will come by providing “increased functionality
capabilities for business and enterprise customers.”

Dropbox secretly filed the paperwork for an IPO,
according to a Bloomberg report on Thursday
.  

The IPO has long been rumored to be in the works, and given
Dropbox’s last reported private market valuation of $10 billion,
it’s expected to be one of the biggest public offerings in tech
this year.

Many of the details, including the size and valuation of
Dropbox’s planned IPO, are still unknown. The lens through which
Wall Street will assess this big tech IPO is not ideal, however:
Snap’s
much-hyped 2017 IPO has proven disappointing, with the stock now

trading below its offering price
.

And Dropbox’s closest parallel in the public markets, Box, has
faced a rocky ride on Wall Street. The stock soared 70% the day
of its IPO in January 2015, then
plunged to its IPO price
and has only
recently returned
to the level it reached on its first day of
trading.

Dropbox is cash-flow positive, and it has room to grow

Aaron LevieAaron
Levie, CEO of Box, a Dropbox competitor
Flickr/
TechCrunch Disrupt 2013

The good news for Dropbox is that it’s in a healthy, fast-growing
market.

The so-called content collaboration market grew by 40% in 2017,
and Gartner forecasts that it will continue to grow by
double-digit percentage points through at least 2021. 

This means that there’s more than enough room for both Dropbox
and its competitors at Box, Google,
and Microsoft,
according to Karen Hobert, an analyst with Gartner. 

“It’s not a fight to the death,”
Hobert said. “We’ve seen significant growth and we anticipate
significant growth in this market.” 

For 2018, Gartner forecasts 34%
growth in the space, with steady declines on an annual basis.
Over time, Hobert said, that growth could stabilize around 8% to
12% annually.

As a private company, Dropbox’s financials results are
still under wraps, but the company said in January 2017 that it
was on track to 
generate
$1 billion in revenue on an annualized run
rate.
 CEO Drew Houston said in
June 2016 that 
Dropbox
was “cash flow positive,”
 an important gauge of
financial health followed by Wall Street. 

This is good news for any company, but especially one with
potential traders looking for signs that Dropbox stock will see
returns in the long-run. 

It’s a success with consumers, but Dropbox needs to focus on
businesses 

Dropbox has two core products: a freemium consumer file sharing
service, with paid upgrades; and an enterprise-grade storage and
collaboration platform. The company has around 500 million
customers, but it’s unclear how many of those are individuals,
and how many use it for work. 

office workers deskOli Scarff / Getty Images

Though Dropbox has a strong reputation in the consumer space,
analysts said that it will need to focus more on its business
clients if it wants to grow its market share. 

IDC analyst Frazier said that while Dropbox has been less focused
on its business product than rival Box has been, there is
“certainly potential” for them to succeed with those
customers. 

One big advantage is Dropbox’s approach to security and
infrastructure. Most of Dropbox’s services run on services owned
and operated by the company, rather than third-party cloud
storage providers like Amazon Web Services or Microsoft Azure.

“I’m really impressed with the
approach to security that Dropbox takes — because they run their
own infrastructure, they have their arms around everything,”
Frazier said. “
If I were
an enterprise buyer, 
I would be looking at that really closely at
that as a potential competitive advantage.”
 

Dropbox could struggle to keep its ‘creative’ brand once
public 

Dropbox T-shirtsThe Dropbox office T-shirt
collection
Karyne Levy/Business
Insider

In October, Dropbox rebranded to position itself as a the cool,
creative collaboration tool. “We want to make work a place where
creative energy flows,” the
company said in its announcement
of the rebrand. 

Hobert thinks this positioning has worked for the company so far,
but that it might pose a challenge to Dropbox once the company is
facing constraints as a public company. 

“Dropbox has always impressed me
as a company that has a strong personal ethos around creativity
and doing things the way they’d like to. Being private, they’ve
benefited because they’ve been able to be innovative,” Hobert
said. 

“Once they go public, they might
have other pressures that hinder that ethos, that might put more
imperative on delivering certain
capabilities. 
There
will be a little bit of a sobering up because they no longer can
be autonomous,” she said. 

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