Dropbox Reaches Key Profit Milestone
bloomberg.com
bloomberg.com
FYI - it's very likely that Dropbox is depreciating a HUGE ($100's of millions) amount of data center cost.[0] Translated into a more common "AWS opex cost", might yield a company that isn't really profitable^. EBITDA can be very misleading (not saying it definitely is in this case) so it's always worth analyzing it with a grain of salt until you have all of the full granular details.
[0] - http://www.datacenterdynamics.com/content-tracks/colo-cloud/...
^EDIT - I should have said, "might not be profitable yet".
To illustrate, let's consider a company that buys a $100 data centre every 10 years. (To keep things simple, let's assume the data centre is worthless after 10 years.) The data centre generates $20 in revenues for each of those 10 years.
Instead of showing an $80 loss in year 1 and then a $20 profit in years 2 through 10 (with the expectation of another $80 loss in year 11), accountants smooth the numbers based on expectations. The $100 data centre cost is "depreciated" over the expected lifetime of the asset. So one might account $10 of the data centre's cost to each of its ten years, thereby producing $10 of profit each year. This better reflects economic reality.
Ebitda does not include depreciation. The aforementioned company's Ebitda would be $20 for years 2 through 10. This is a small problem in year 2. But if you're an investor in year 10, ignoring that depreciation is the flip side of capital expenditure, you're in for a nasty shock when year 11's predictable capital expenditure comes down the line.
https://techcrunch.com/2016/06/14/dropbox-says-it-is-cash-fl...
Therefore, free cash flow in any single year does not say much, only when considered over many years.
The key question is, then, those large capital expenditures that are accounting for the large depreciation charges, were they truly one-off, or can we expect them to be recurring?
Having said that, I have made mucho dinero off of investing in companies that have negative earnings due to high depreciation charges from truly one-off expenses (infrastructure investment, foolish purchases by previous management, etc.). Eventually the depreciation tapers off and earnings fall in line with fcf, and I make money.
Maybe you can further explain the difference between cashflow positive and EBITDA?
So if AWS cost $10/year, would EBITDA be $10?
EBITDA is Earnings Before ITDA. Quick example, with super simple math:
Scenario A (AWS)
- Over 5 years, you bring in $1M per year in revenue
- Every year you pay $200k in AWS fees
- Your earnings (Net Income) are $800k per year, your EBITDA is $800k per year
Scenario B (Buy your own hardware)
- Over 5 years, you bring in $1M per year in revenue
- You pay $1M in year one for hardware and depreciate it over the next 10 years at $100k per year
- Your earnings (Net Income) are $800k per year, your EBITDA is $900k per year
There are a ton of nuances to this, but this is generally how it works. As you can see the depreciation schedule affects this a lot, as well as when you choose to make the investment. Hence why it's feasible that Dropbox took out it's largest operating expense, i.e. AWS storage, which literally overnight increased EBITDA. It just so happens to be that a year ago they switched over to their own data center, and now they are touted "EBITDA profitable".
Long story - these stories are kinda stupid unless you get to see the full income statement, balance sheet and cash flow statement.
The aggressive depreciation schedules might be due to the more compute-intensive use cases. Most servers are replaced due to new technology, mainly power consumption improvements. Maybe for low power scenarios the ROI bar for replacement is a lot higher, meaning low power servers get used longer than average. I would expect that Dropbox mostly uses these (I would assume they are more IO bound than compute bound).
See here for more info: http://www.investopedia.com/walkthrough/corporate-finance/2/...
Weird tangent, but there are methods to classify AWS spend as CapEx; while your typical startup isn't going to bother with it, companies spending in the 8 figure and up range annually on AWS annually do tend to go down that path.
A terabyte per second, am I reading that right? It sounds... Insane?
The same can be said for the other software giants.
Also, for Dropbox to get to $1B in revenue they have hundreds of millions of users. This is a tremendous amount of adoption. Dropbox's real benefit lay in that it integrated directly into your OS so that it appeared just like a regular directory. This meant that usage patterns for users didn't change and so adoption ramped quicker.
Google on the other hand was always more of a work suite or productivity suite.
So ultimately what happened is that as the other large companies played catch up there simply wasn't enough of an advantage to switch to them away from Dropbox.
Paying users? Why? Every user brings in 120 USD/Euro per year.
its limited to 2GB, but you could increase it by installing the app on your phone and enabling the auto upload of pictures. every picture increased it by (iirc) 5MB - and this extra space stayed if you removed the pictures.
haven't used it in ages though.
I know, I have used Dropbox since 2010 ;). But the free tier does not contribute to the revenue of Dropbox. There are no ads (except for Dropbox Pro/Business :p).
Dropbox has some deals with Samsung and others for coupons for certain phones, but most of the 1B is probably brought in by paid subscriptions. Since Dropbox costs $10 per month (plus some Packrat and Advanced Team users), there are roughly 8 million paying users who bring in the revenue. Since Dropbox has ~500 million users, that would be a conversion rate of 1.6%, which seems reasonable.
Of course, I could be way off.
Which is the best selling point of Dropbox. It doesn't try to be an office app suite, a photo editing solution, a cloud collaboration platform, etc. It just syncs files between computers and phones, and has simple UX because of it.
Drive in particular is terrible from a usability perspective. I prefer drive because I'm aware of the advantages of the platform integration as well as the docs collaborative editing features, but many lay users won't get past the onboarding from Gmail over to Drive to discover its advantages.
For a first time user, Dropbox is a much better product on day one by comparison.
That's interesting. So I can only have one Drive account signed in on my Android phone?
Microsoft and Google tainted their offerings from day one and I don't think anyone who remembers those systems wants to go back to them, even if they've improved. I think the old restrictions on file sizes and awkward interfaces have left them with baggage that Dropbox managed to avoid. These are just my opinions based on my experiences using all three products.
I never thought I'd write excitedly about this, and was super sceptical at first, but honestly, it's great. GSuite feels like a toy at this point.
I fear that other providers will neglect the client on platforms they are not trying to push. If a new platform were to pop up and become popular, I am pretty confident Dropbox would make a client for it, whereas the others I think would drag their feet. I don't want to be weighed down by my cloud sync provider like that.
* It 100% "just works" on all my devices (Mac, Linux, on a server, web, on my phone -- hell, I could stick it on a Raspberry Pi!).
* It integrates seamlessly with my filesystem.
* It has never, not once, failed me or bugged out on me. I've been using this product since it first came out and have not experienced even a minor bug!
* It's not tied to any other platform or service that might have conflicting interests.
* No fancy "smart" features or unexpected behaviour. All options are explicit and behave as expected.
* No fancy UX experiments, just straightforward to setup and use.
* I never have to think about it, it just does its job.
* It's a paid service that makes money (this in itself IS a feature).
It's just better than the competition. The peace of mind and get-out-of-the-wayness is well worth the $10 bucks a month. One of the few products that would be truly painful for me to lose...
I hate to be cynical here, but they're EBITDA profitable, not profitable, and they've been in business for 10 years. I think there are thousands of better examples but they might not be at the scale of Dropbox.
Of those thousands of examples, which are the closest to Dropbox's scale?
Dropbox has exabytes of data. I'd be very surprised if SpiderOak is storing more than a few PB. Perhaps some SpiderOak folks would care to correct me on this though?
In this case, I'd consider Dropbox's emergence into slight EBITDA profits as not great, but a definitely welcome sigh of relief for a unicorn market full of bullshit.
There are some opportunities for real innovation, though. An easy one is de-duplication of identical files to save space (which I have tested that they do). However, I suspect it can be taken much further to gain a competitive advantage against other storage providers, such as de-duping blocks, advanced compression algorithms, etc.
And of course, there's always room for creativity in the hardware and data-centers, and UX.
supporting hundreds of millions of users (and probably tens of millions of paid users) is non-trivial
While support staff definitely increases with users (paid or not), beyond a certain size the number of engineering staff should be largely independent of user count. As long as you are able to run 24/7 ops, manage outages and incidents, scale appropriately, etc. the only variable should be how rapidly you need to build and maintain your software. The rest of the complexity is all handled via automation.
I am not an expert but I agree with you. Follow up question: why is this not more common? why don't other companies emulate WhatsApp?
Not to take anything away from WhatsApp, I'm sure they have a few lessons Dropbox could have learned from (Erlang more robust than Python at scale?), but it's really not a fair comparison.
I don't know how many people remember just how painful life was BEFORE Dropbox came along and fixed everything...but they were like an oasis in the desert when the beta first appeared.
Failing on that one for me. I hover close to the storage limit, and I receive constant notifications from the software about it. No option to "leave me alone" in the settings.
Another shitty thing they do is, they often have promotions giving you a huge amount of space (10-20GB) but only for a year. They get you to fill up your Dropbox with content you depend on, and after a year, they're like "now you got a week to delete it all or pay for premium!"
I have experienced sync failures on occasion that required restarting.
The problem is that they aren't profitable.
Their basic service is very good, though. Apart from sometimes using lots of resources on MacOS.
Is a 1TB family plan for $10NZD per month (not $10USD which is like $4000 NZD /s) too much to ask?
Microsoft have a $7.99 NZD per month O365 plan that includes Email and 1TB OneDrive.
I can also buy O365 Home Premium (5 user including thick apps and Skype credit) for less than $10 per month ($99 NZD per year) -- and that's for 5 users.
Microsoft are consistently adding value to their O365 offering, its only a matter of time until they nail the "Dropbox" level of quality on OneDrive and then Dropbox won't be relevant anymore. They need to bring that price point down for the different locales. $120USD per year is just too much.
I have an Office365 subscription that I don't use.
Their OneDrive client is shit and they don't do file version history, which means that files are very vulnerable to mistakes and ransomware.
With OneDrive you basically get exactly what you're paying for.
> Microsoft are consistently adding value to their O365 offering
One way of looking at that is the quality of their offering is so bad that the only way to go is up.
If you objectively analyse their price, Office 365 is in fact overpriced. For example I spent about $20 on Apple's Keynote and it was a one time fee that happened 3 years ago. It's still the best presentation software for me. And personally I have important data, like a big family photos archive, a lot of documents, presentations I did, stuff I found interesting, etc. The cost of losing it would be pretty high.
I'm very frugal in general, but I don't mind paying for email and storage.
Official line from Dropbox is not to use soft links.
Dropbox just works and that's worth 10 Euro per month to me, it saves me heaps of time.
Google Drive's features may be peerless, such as their built-in office suite, but the fear of damaged data or spending an afternoon getting your files right drives me back to Dropbox for basic multi-machine file storage and syncing.
People tend to compare the Dropbox price to for example S3 storage price, but I think that is wrong. I'm for example using the Dropbox for certain project files and I'm sure that at least in my case the major cost is not the actual storage, but bandwidth and processing.
Edit: (1) Compared to other file storage services.
It's a shitshow app. Dropbox just works.
Dropbox has been willing to get their hands dirty in their pursuit of user-friendliness since day one, especially on the Mac¹.
- If it starts up and your GDrive folder is empty, it deletes everything from the online version.
- There is no history like Dropbox, so once you fuck up and delete everything there is no easy way to get it back.
But now I'm back.
Google Drive is unusable. I upgraded to a paid plan so I'd have no storage limits. But the moment I tried to back some large folders, I noticed the upload speeds were capped, and the native client kept crashing. I'd leave it on overnight, just to see it not running in the morning. 100 GB of files is a trivial amount these days, and it's impossible to manage on Drive. And selective sync would attempt to upload the folder before it deletes it locally, so was useless. I couldn't just select which folders to upload first, even though I was there trying it due to Drive's own inability to upload large amounts of files.
Then there are all the sync issues. I had setup 5 or 6 computers to sync files, which is the main use case Drive is sold on. Yet, I'd notice (1) and (2) and (3) duplicate versions of the same file, and at one point I had a folder with (79).
So I'd have to dig through partially synced folders and duplicates just to figure out what to sync first, then sort through computers to see if Drive was actually running. Then remove large folders to outside of Drive, and drop them in in batches just so Drive wouldn't choke itself.
I also had an issue with file name length. I had copied a folder of saved web pages from Dropbox. I'd noticed all the directories were empty in Drive. Turns out, the folder names were too long. I understand the existence of technical constraints, but if I can't move files from Dropbox just by copying them, Drive needs to modify it's feature set.
Insync is the only reason I still have Drive. It doesn't crash, and it doesn't have sync duplication issues. But again, there is some API rate limit that causes it to halt. Drive is simply incapable of handling large amounts of files. I wish they'd just say that.
So I am back on Dropbox because I have no other options. And it just works. I had no idea syncing was such a hard problem.
And now with smart sync, I can see the files locally without having them take up space. Most of the files are for storage purposes anyway, so this is genius. The new online interface is better than google also.
It still locks up Photoshop, and I bet it's still piss slow in Japan, but for now all my large folders are back on Dropbox. Drive is reserved for Sheets and Docs that don't take up any space anyway, because the files are just links.
I use Windows but I don't trust Microsoft.
I started with Dropbox, and attempted a sync of my local files. Within minutes the Windows app crashed.
I switched to Google Drive, same thing. Synced a large number of files and the Windows software crashed.
Even Tried Insync, still had crashing issues.
Researched the issue and found that both clients are limited in the amount of RAM (32bit vs 64bit) and this limit is easily reached when syncing tens-of-thousands of files causing the software to crash.
Neither provider offers a 64 bit version, or a version of their client software that handles syncing jobs this large.
I finally settled on Backblaze which was affordable ($5/month), and "just worked". The files aren't as accessible as Dropbox or Drive, but I still use those for the files I need/touch often, and use Backblaze for my "entire PC" cloud backup solution.
p.s. I made this comparison of cloud image backup solutions back in 2012 (https://docs.google.com/spreadsheets/d/1mWx6wbL6NYbhjY1_ISNa...), it's crazy how many of these services are now defunct.
My main machine has 32GB of RAM, and I bet this helps alleviate the burden of large sync tasks, but here is a link to the issue Google Drive has:
https://productforums.google.com/forum/#!topic/drive/mo298Ko...
> If you happen to have a Mac available to do these uploads, this limitation should not exist in the Mac version of the client.
Those are the words of a Google employee. Offering a product that is fundamentally flawed is unacceptable -- Google or otherwise.
> We've released a new version
Didn't work for me. Then I started getting other errors, so I gave up.
Pasting below for reference:
-------------
Ken Watford said:
Error D41D on Windows is a memory error. The Windows version of the product currently has difficulty syncing large numbers of files at once due to the memory constraints on 32-bit applications, even if your machine has a lot of memory. The number of files it can handle at once varies a bit, but it can't reliably do a million at once. The actual size of the files isn't much of a factor.
I would recommend moving those files back out of your local Drive folder and starting the app. Once it has settled, move them in a little at a time, preferably fewer than 100k at once, waiting for the sync to complete before the next batch. The limitation is not on the number of files synced, but the number of files actively syncing.
If you later need to sync all these files down to another Windows machine, you will probably need to use the Selective Sync option to only sync down a few folders at a time, adding more later.
If you happen to have a Mac available to do these uploads, this limitation should not exist in the Mac version of the client.
Lulz - this is false/ won't work. I tried 50K, 10K, 5K, 1K - still crashed. Manually syncing my 4.4M files <1K at-a-time is insanity.
> So I am back on Dropbox because I have no other options. And it just works. I had no idea syncing was such a hard problem.
This is such a great comment. I'm bookmarking it so I can post a link to it every time someone on a different thread asks why Dropbox is still a thing :).
"Profitability" can mean whatever you want it to mean at a given moment. In this particular case it's closer than a lot of measures, but it's still a non-GAAP profit. In general these sort of startup announcements are marketing materials.
Every company I've been at has declared themselves "profitable" -- the devil is in the details of what you choose to ignore.
EBITDA and cash flow are useful metrics to look at when evaluating whether or not a company can service debt, but I'm wondering why they needed to open a $600M credit line last month if they are gearing up for an IPO?
I guess they need a bit of extra cash on hand to pay off taxes as well as interest on their last 2 loans (funding rounds) from JPMorgan?
my favorite comment is definitely this one:
1. For a Linux user, you can already build such a system
yourself quite trivially by getting an FTP account, mounting
it locally with curlftpfs, and then using SVN or CVS on the
mounted filesystem. From Windows or Mac, this FTP account
could be accessed through built-in software.Seems roughly comparable to a company that's about to launch, say, a new electric car running a campaign to get people talking about how fun it is to drive electric cars. Other than the clear effort to get coverage from journalists, is there really something nefarious going on here?
So pushing articles on HN and other outlets doesn't qualify I guess?
My reason to drop it is that I want my data out of the US for privacy. Our local (german) companies can provide the cloud basics by now.
Given most cloud providers use AWS as a back end, that's probably not possible. Plus, if you send email, it likely will hit a gmail,hotmail,etc. server. It's basically impossible to avoid.
Sure, lots of my contacts use gmail, but since email encryption is not really used, email is practically unsuitable for secure communication anyways. Fortunately, we have a few good instant messengers (Signal, Wire, Threema, ...) now. The primary use for email today is authentication, so I should probably get my own domain to maintain control.
My replacement for Dropbox is SyncThing. There is no cloud storage. It does not provide sharing via public link of course.
ProtonMail does PGP via Javascript in the browser, which is ridiculed by security people. Mailbox.org tried that in 2015 and it did not survive their internal pentesting [2]. Maybe ProtonMail has better coders. Maybe not.
Mailbox.org smallest offer is 1€/month. ProtonMail lets you choose between nothing and 5€/month. I like the mailbox.org price point.
If you believe in secure communication via email, you should support ProtonMail. They try to make it hip and easy. In my opinion this is a lost cause. Even if we could educate the masses about PGP, this is still behind the Double Ratchet Algorithm [3].
[0] https://mailbox.org/en/history/ [1] https://en.wikipedia.org/wiki/ProtonMail [2] https://www.reddit.com/r/de/comments/3z0ymc/mailboxorg_oder_... (german) [3] https://en.wikipedia.org/wiki/Double_Ratchet_Algorithm
>Dropbox Inc.'s chief executive officer said the company is now generating a profit excluding interest, taxes, depreciation and amortization.
Current title makes it look like Wall Street it saying it. The real title makes it clear that the CEO is saying it, which, as a result, makes it useless PR drivel.
Probably because both companies where "positive EBITDA" was a relevant phrase no longer exist.
"“EBITDA profitable”, n. Technical term used in accounting for companies running at a loss"