Dropbox Files Confidentially for U.S. IPO
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3 things I'm looking forward to knowing.
1) What is their profitability? I think they might surprise some people here, like Google did when they were private, hiding just how much money they are making.
It will be nice to see a cash flow positive tech company going public!!
2) What sort of share structure they are looking for. I think after SNAP its going to be a tough sell to get away with no voting control,
3) Can they go public at a valuation larger than the rumored $10+ billion they were valued at without resorting to cheap tricks like only floating 5% ala Groupon.
As a side note, it looks like JP Morgan and Goldman Sachs decision 4-5 years ago to start offering more services to private companies is starting to pay dividends
One thing I've always wondered is what is their actual cost structure. Based on my own usage I would assume the actual storage part is quite small compared to the data processing and bandwidth. Since the sync works so smoothly, it is convenient to keep all kinds of projects there. Thinking for example node.js projects, which take not so many megabytes, but may contain 10-100k small files (due to dependencies).
Have we really come to the point where its "couragous" to charge money for your product?
Example is Twilio. They were first and we implement them very heavily into our systems. Currently our bills are at around $400 per month. Phaxio is much cheaper, but we just got used to Twilio and unwilling to spend time money and resources into jumping to something else just for the sake of little savings.
They've always charged for higher tier services but they've also always had a free tier where they provide service without charging anything.
If I had to guess, Dropbox improves their margin by getting people to share files and folders (because that counts toward multiple users' quotas).
Unlike money-losing Snap, Dropbox will come to the table with annualized sales of more than $1 billion, Chief Executive Officer Drew Houston said in an interview last year. It’s also been profitable, excluding interest, taxes, depreciation and amortization. Those benchmarks are the product of more than two years of focusing the company, expanding its product suite for businesses and reining in expenses, Houston said at the time.
Amazon’s decision was quite obviously a choice. Snap and Twitter are more natural comparisons for Dropbox if it’s still unprofitable.
They played the long game here. I'm still not a paying customer after almost ten years (partially because I got a lot of free space via referrals and trying out their apps). But if I ever max it out and decide to start paying someone for space, it'll be them unless there's something out there that does what they do at a price that's low enough to make the effort to switch worthwhile.
And, more notably, the freemium model means that they're able to invade the business world in the same way that the iPhone did with BYOD. And there's a lot more money there.
I'd be stunned if Dropbox wasn't very successful already, and I'm happy that someone outside of the Big 5 is doing what Dropbox is doing. It's a fantastic and indispensable product for me.
Warren Buffet goes on periodic rants about these accounting gimmicks in Berkshire's annual letters. Metrics like EBITDA pretend things like massive capital investment don't exist. Guess what, if you own datacenters, or railroads, or anything else, you absolutely have to factor the costs of acquisition and holding those assets into your business model, metrics, and financing needs.
Amazon seems to have this figured out. Look at their financial statements, they always put the statement of cashflows first, right at the top, #1. Everything else is secondary. I'm not surprised their founder is worth 12 figures.
He might talk about profits a lot, but Berkshire is very much a cashflow-optimized machine. The entire thesis of the company was a hack, noticing that insurance collects cash upfront (premium payments) in trade for future liabilities, giving smart insurers a huge amount of cheap, investable cash.
Within Berkshire, they have operating businesses (Marmon, Fruit of the Loom, Dairy Queen) that throw off operating profits, which then get plowed into high-return but illiquid assets like BNSF (the railroad) which are great long-term investments, but require deploying mountainous, almost government-sized piles of cash.
This isn't my own thinking either; it's a bit of an infection of American businesses that we're so margin-obsessed. This is the thinking that got IBM out of PC manufacturing. "You can't take a profit margin to the bank", as they say. And given the current rate climate, we're anything but capital constrained.
Cashflow is everything.
I know some people will scoff at that, and there is always the "yeah but google drive/box/oneDrive is better", but you guys did it first and still do it best! I've been a Pro member for a long while now and I'll be with you guys until the end - good luck and I'm excited to see what the future holds.
After all that, I'm not a paying Dropbox customer though. Unfortunately their pricing left me behind when it went to $10 a month for 1TB and nothing between that and free. So instead of I deal with the wonkiness of Google Drive when I need to on Linux and it works well enough everywhere else and the $2 a moth for 100GB is plenty.
[1] https://mega.nz/
Seriously. Don't hold your personal files on mega. They can be shut down any minute and delete all your data. That's what happened last time.
Dropbox is a respectable business. It's not comparable.
It is fully laws and DMCA compliant. It is not about piracy anymore.
Would be a crazy coincidence for Mega and my laptop to get deleted at same time.
From another perspective, it's a little concerning how big a company it takes to deliver a useful and consistent service like this.
I've never had uploads failed while the app was in the foreground. I agree this is inconvenient, but it isn't the app developer's fault.
So Box suffered the pain of being the first in the easy consumer/business online storage category to IPO -- but Box's numbers are now driving valuation of their competitor.
Dropbox: $1B in revenue / $10B valuation (10x)
Box: $400M in revenue / $3B valuation (7.5x)
The real question is earnings(which we don't know yet for Box) and whether Dropbox has a compelling case that it grow faster than Box to justify the higher multiple.
The real issue for me is that file storage is ultimately low profit margin business when the growth maxes out. The end game comes in next 5 - 10 years during a downturn and Amazon, Google, Microsoft, Facebook, or some Chinese company buys one or both of them out and gets the brand and the customers.
Your Box multiples look to be correct - looks like they trade at 6.1x on a trailing twelve month revenue basis, and ~5.0x on a next twelve months revenue basis.
Given that Dropbox has a $10BN valuation and a $600MM line of credit from the big banks, I would expect that their trailing revenue multiple is ~10.0x.
With Google Drive I can max out my Gbit Fiber (I downloaded with 920 Mb/s last time), while Dropbox was slow 8 Mb/s. Though I am not sure if Dropbox isn't rate limited for the free accounts.
That doesn't confirm your hypothesis, but it's a counterpoint I suppose.
Maybe I will contact the support and ask them.
For $8.25 a month I get Office on all my devices and 1TB per 365 user.
I have gigabit internet and there isn’t much difference in OneDrive or Google Drive.
Google Drive is way way slower due to lack of block level syncing and other issues. You shouldn't be looking at the bandwidth usage you should be looking at how long it takes the files to sync.
It's always fun to look at the comments at the time the MVP was posted here on HN:
Like: "The only problem is that you have to install something."? Regular users don't care and they didn't care then.
Linux users can build this quite trivially? Yeah, but your average person can't, so who cares?
"Not income generating"? It's storage. People pay for storage all the time.
Not sure if it was just in my part of the world, but when Dropbox started, people only paid for local storage. And that was mostly technical people outside of small USB drives.
> 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
"quite trivially"
aka approximately no one, and certainly not anyone with a smartphone (technically Linux but you can't set up all these services easily).
My YC app: Dropbox - Throw away your USB drive https://news.ycombinator.com/item?id=8863
Dropbox launches (YC summer 07) https://news.ycombinator.com/item?id=134405
Too bad we didn't have the opportunity to buy some "DBCoin" back in 2007. I'd have bought a lot!
Congrats dhouston & co on building a company that improves the world in a significant way.
Thanks.
This means that ISOs can probably be exercised tax free, but NSOs require you to pay taxes on the spread from strike to the fair market valuation.
If your strike price is low enough you may be able to save and afford to exercise the ISOs, the NSOs will probably be too expensive with the tax burden.
There's also a 10yr expiration on options anyway so it's possible that you could lose them even if you're waiting for an IPO while holding unexercised NSOs.
In my experience, small startup options don't get exercised because of the tax bill, not because of the strike price.
You still have to watch out for the California AMT (which I didn't know about) - it's 7% and will still trigger at the lower value. As a bonus you can no longer deduct it either past 10k from federal taxes (though that may change with the charity thing).
The ability to do early exercise on unvested shares is also often not an option at startups so when you are able to exercise the spread is higher and the tax penalty is worse.
So if you don't foresee being at the company for at least 5 year or foresee having the money to purchase the options you have accrued after the 1+ years then you are better off asking for cash. Companies of course don't like this because it costs them nothing if they pay part of your comp in options that you then leave on the table when you leave the company. This is calculated, the companies know this.
How many startups can you expect to work in your career where you stay for 5 years? Lets say you work for which would be 20 years of your career. How many of those 5 are going to actually IPO? The math suggests you leaving a lot of money on the table. If you take the comp in cash you can put that money to work for you in other ways.
Personally I've made way more from stock options than I have from wages. Google stock has appreciated 7x since I joined in 2009, so you can do out the math for various fractions of equity compensation. And this was for a company where I valued that equity at zero, because it already had 20,000 employees, it was in the middle of the financial crisis, its stock was dropping like a rock, and 89% of employees were underwater in their stock options.
You could argue that if you take cash compensation, you could then invest that in public market stocks (like GOOG etc.), and there's a pretty good argument for diversification and not holding your net worth in your paycheck. OTOH, when it's your company stock, you also have an information advantage: for example, the press was very down on Google for most of 2009, thinking that they'd tapped out on growth and the web was basically over, and after the initial post-crisis bump it basically traded sideways until mid-2012. Having seen the energy there, the products under development, and the query growth rate numbers, I knew this wasn't true, but if you'd worked for cash in another company and then tried to invest in the public markets you would've had a very distorted picture of reality.
Not necessarily, it depends on what your strike price is.
>"Google stock has appreciated 7x since I joined in 2009"
The context was startups and IPO'ing. Google is neither a startup nor were you a pre-IPO employee.
But the point I wanted to make, bringing up the Google example, is that I didn't expect Google stock to have much upside in 2009. Most people didn't expect Google stock to have much upside in 2009. Google stock still had much upside. The excitement was all in Web 2.0 startups (like zillions of other people, I founded one), but most of them had little success. We're talking about Dropbox now, but Dropbox was a desktop app startup, perhaps the one thing less cool than a big tech company in 2008.
Similarly, the common wisdom now is that startups are a losing bet and you should go ask for cash at an established company that can pay you well. Usually, in markets, when something becomes common wisdom it ceases to be true. So I will happily take the opposite side of that trade - I'm back to founding a startup, I work for equity, and if people want cash, I'll pay them in cash. I realize that I'm making a risk/reward tradeoff here and there's a fairly decent chance my equity will be worthless, but I choose to make it anyway, because I believe that at this point in time, the startup career path is undervalued.
Yes of course that is just common sense and there is nothing in my comment that suggests you shouldn't apply common sense.
>"Nobody on an Internet forum can do that for you"
Well of course not and I was not attempting to advocate for someone else. I thought this was implicit when I stated "I think ..."
The employee got what they wanted (cash for their stock).
ROFR isn't that bad. What is bad is some contracts have a call option on your stock at FMV price, even when you exercise.
What infuriated me was that I had to do all the leg work and paper work and it was only when the money for the sale went into an escrow that the company rejected the offer. So they wasted a lot of people's time unfortunately - mine, the broker and the buyers time. The companies "preferred buyer" turned out to be some Hollywood big wig. And my guess is that they never had any intention of letting my proposed sale go through.
One curious thing I learned is that although this practice of selling options on the secondary markets by "worker bees" was strongly "discouraged" because it was seen as a sign of not believing in the company, it turns out the execs were all selling their options left and right and had been doing so for years.
That being said, read the options agreement carefully and ensure your interests are well protected.
It's worth noting that, in nearly all cases, you will not receive an options agreement until well after you have accepted the offer.
I've never tried to ask for an options agreement prior to accepting an offer, but I'd imagine it would be a very difficult thing to get at most companies.
Point is, negotiate a salary that meets your needs, and treat the stock options like lottery tickets, because that's what they are.
https://www.wsj.com/articles/SB10001424052970203833004577249...
And you can't do it in an adhoc manner, it's usually organized by the company to one buyer.
Customers.
Using a 10% time-value-of-money discount, your stock options are only worth ~35% of their final monetary value when you first start out in the 10-year payoff case. That's not a 35% chance that you'll make something, that's the discount on what you do make. You still need to factor in the risk that you'll get nothing or a pittance, especially if we're talking early startup where the risk that you get nothing is probably somewhere in the 90% range. You don't have to come up with very unrealistic numbers in the current environment before you're looking at applying a ~95% discount to your hopes on what your stock options might be worth in 10 years.
(IMHO, working at a startup when you're young for some hard & fast experience, if you can afford it, is possibly still worth it, but at this point in 2017, early engineers should be demanding either cash or founder-level equity grants. An in-between grant that may pay out $100,000 in ten years may sound grand from the perspective of someone about to receive that payout, but from the front-end you should value it somewhere around $5K or so, and I wouldn't fight anyone who wants to pick numbers to push that lower. On an annualized basis, $5K is more like "a minimal raise" than a reason to work at a company.)
Money today is worth more than money tomorrow, and often the lump sum of money you get at the end of a startup’s liquidity event as an employee is not much greater than someone who earned money through a more traditional route, if you even get it. I know people who chased the startup life for years with nothing to show for it.
A decade later when they finally give up and resign to a more traditional career path, their cohorts who started down that path a decade ago are now impressively far ahead of them in life. I’m talking big houses with long hallways and a baby or two keeping them up at night while they ascend the ranks of a “real” company during the day.
So when playing the startup game, the only thing on your mind should be “fast money, fast money, fast money!”. If you like to see businesses that have been around for way longer than 10 years and building strong revenue that most startups can only dream of, don’t look for startups.
So in practice, employees are shackled to the company until IPO happens.
(Note: some more progressive companies have been combating this dynamic a number of ways -- I don't know if Dropbox is among them)
The standard pitch (that many recruiters abuse) was that your options would become real in 4 years but the reality is this is closer to a decade. If companies were marketing their options realistically instead of selling them like snake oil the 10 year point would be fine.
I remember interviewing with an almost unicorn and their VP of engineering literally tried to pitch their options by telling me to assume the company would IPO at XXX price within 4 years. No mention of opportunity costs, tax issues, liquidity issues, etc. He even forget to consider the strike price when "helping" me ballpark the benefit. And everyone seems to forget there is thing called the discount value of cash - $200K in 10 years is not the same as $200K in 5. It's been 2 years since I got that unicorn offer and I can say that the company is at a minimum still 4 years away from an IPO.
Stop selling the snake oil and people wouldn't be unhappy when there is a decade long payout time.
But more to your point, recruiters lie, and if you don't realize that as a grown up, college graduate, you've got bigger problems in your life, I suspect, than when a company decides to file IPO. They shouldn't lie, but recruiters tempting you with options also isn't a reason to suddenly submit to the SEC and public traders to get some cash.
But the AMT/exercising problem can be severe if you're unlucky.
The options given out at that time were priced at a $10B and have been basically under water since.
So even if you do join a fast growing company with a good brand and the potential to go public there's still a solid chance you make no money.
Note: I am basing this from one person who shared financial details with me, there may be a large variance in offers to different employees.
For those employees that did exercise their underwater options, one small silver lining is they can write those losses off on future tax returns.
Note this only applies to NQSOs not ISOs - since the gain in the ISO case is taxes as AMT; the loss can only be carried as an AMT loss and applied only if/when you are actually subject to the AMT.
It's possible to have RSU awards that vest without them being released to the employee. This means that (unlike exercised options) you can't sell them on the secondary market, but it also means that you aren't liable for taxes on an illiquid asset.
https://www.inc.com/christine-lagorio/public-offerings-how-c... is a good read.
Why is there no easy place to see this?
The day gets set much further down the line.
I have a few gripes about how it handles conflicts and cross platform issues like capitalization, but they are minor compared to the benefits.
The picture you try to portray is “no wireless, less space than a nomad, lame” and that’s not the case at all, I think it is a question worth considering.
https://news.ycombinator.com/item?id=13742251
Props to those for whom this finally pays off!
And for me, even on windows, the Dropbox client just seems so much more stable than Drive. It's very common for me to see Drive with a little "dead" icon, saying that it couldn't connect, and stopped trying, and I have no idea why.
That is he magic of Dropbox and what people missed in the infamous Hacker News first post.
Or the privacy mess that is Windows 10...
1TB on Dropbox is $9.99 per month. That's a bargain. I'm not really one to use an inferior product just to save a few dollars.
When I used OneDrive, it also didn't sync files. If you opened something in Word from OneDrive, it created it in a temp folder and resynced when you saved it (hence the disappearing documents because of their buggy implementation).
And of course, OneDrive doesn't work on Linux. It's garbage and it's one of the reasons that Microsoft latched onto Dropbox with Office integration because their product was just that horrible.
OneDrive is almost as good, but Google Drive is not, especially their client is unreliable.
I might also add the heuristic that "if a youngish person is creating it, it probably WILL be the next thing"
I'd also like to point out that not all redesigns go as planned, but iteratively eventually 'get' there.
See: Android's honeycomb and later Ice Cream Sandwich redesigns before they settled on Material Design.
One of the few apps to have gotten design different and right, at the first time of asking, have been, IMHO, WhatsApp, Stripe, and AirBnb.
I was hoping it's supposed to be a hommage to vintage electronics manuals.
> mugsie: Wow. that is (from my perspective - but only mine) terrible.
> supernintendo: This is the worst UX I've seen in a long time. Not only that, it's visually garish.
> chrissnell: That typeface is just dreadful.
https://www.bloomberg.com/politics/404
https://www.bloomberg.com/politics/500
This is what the general 404 page used to be:
Moreover, Bloomberg is a media company (well, at least the magazine). They have much more license to be insane.
Dropbox is a productivity company and the redesign seems...unwanted? What corporate executive is looking at his Dropbox and thinking that you know, this needs some Sharp Grotesk
>https://imgur.com/gallery/0MoqU4Y
Used to be?
I remember going to the Bloomberg Design Conference a few years back, where they opened with an intro movie featuring their design team satirizing the design process by critiquing a white sheet of paper, eventually settling on a rotated version.
Looks like some thougtless photo effect thrown in just for the sake of it, but it became somewhat more unintentionally trending
Kinda sad realizing that you prefer this, but would chose boring just because it's somehow more safe.
Man..that Sharp Grotesk font. So out of place for a productivity company..What utility thinks of themselves as an art studio?
I'm sure they have better data on this than you or I do. There is an unfortunate tendency on HN to assume people are idiots who don't know what they're doing, as evidenced by every "why does company X need Y engineers??!!" comment.
I'll also admit their enterprise tool that lets you sync only some files as you need them is also seems cool, although I've never worked at a place that used it, and even if I did, I'd probably have to use it in a VM since I've used Linux at my last three jobs.
Dropbox could try to build new products. Keep Dropbox as it is, but then try to branch out and build other tools. Maybe other office tools, or project management tools? They could keep the same login systems if they wants to pitch them to enterprise. But I agree, their core product is sold and should stay that way. Their brand can help them quite a bit if they start offering other products, but only if they're up to the same quality.
I've never needed to get more storage with DB… the free was always good enough though I'm also sure I'm not a big expense to them… many free users are.
Steve Jobs who had incredible design leadership made sure each design decision had a solid reason and a strongly felt impact in the experience. This design is the exact opposite of that.
Personally, anything over a $6.5B valuation for Dropbox is grossly over valuing it, by using Box as a benchmark from the open market
I downvoted your second comment because it's complaining about downvotes, and is making the completely incorrect (and really quite narcissistic) assumption that you getting downvoted means surveillance/privacy has lost priority.
Here's your context.