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Comment by chollida1 | Hacker News Reader

Congratulations to the team and of course YCombinator!!

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

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From TFA:

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.

Doesn't "profitable, excluding interest, taxes .." mean not profitable?

EBIDTA certainly has merits and drawbacks – like any other metric – for measuring the health of a company. https://www.investopedia.com/terms/e/ebitda-margin.asp

EBITDA is a good un-levered metric because it approximates cash flow. For a ten-year old company going public, actual cash flow and net income are more important. If Dropbox are trying to price at a premium to Box and don't even have profits, they're going to look like Snap and Twitter more than anything respectable.

Kinda. It approximates cash flows for some types of companies. For others it doesn’t. Hard to generalize here. Ultimately the best measure of cashflow is cashflow. It’s a good normalized measure of a stable mature business, but it can overstate or understate the health of depending on the revenue and billings model. So, basically, YMMV

Bit of a trick: build your own cloud and turn opex into depreciation on capital investment = become "profitable"

And hide the $600M of debt you just took.

Not necessarily. Excluding interest, taxes, depreciation and amortization (EBITDA) is a common financial metric. It can demonstrate a business model is working, before taking in to account capital structure or other semi-external factors.

This is a ten year old billion dollar company. How can they not have figured out a viable business model?

EBITA is a common way of demonstrating that a company has figured out a viable business model: it tries to show that, given the assets it has acquired and the expenditures it has made and is in the process of paying off, the company makes money.

Ask Twitter?

Amazon was a 20 year old company before it was reliably profitable by accounting metrics. Is their business model viable? That's how a growth company works.

> Amazon was a 20 year old company before it was reliably profitable

Amazon’s decision was quite obviously a choice. Snap and Twitter are more natural comparisons for Dropbox if it’s still unprofitable.

I don't think that's true. Snap's and Twitter's consumer-facing product is free, while Dropbox charges for theirs.

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.

Capital structure is _not_ external. You seem sophisticated to know this, but for everyone else, it's all about CASHFLOW. How much the business has coming in the door, how much is going out, etc.

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.

For what it's worth Buffett doesn't go on about cashflow much either, he focuses on profits in the traditional sense of the owners getting richer.

Says or does?

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.

they wouldn't say it if they didn't have to

7 years ago they were talking privately about being cash flow positive. It will be interesting to see how that’s held up as they scaled.

Would be quite amazing if they are not profitable. After all they seem to be quite conservative on the product development side and have always had courage to charge actual money for their service.

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).

> After all they seem to be quite conservative on the product development side and have always had courage to charge actual money for their service.

Have we really come to the point where its "couragous" to charge money for your product?

I think it takes courage, because people will only pay if you provide some real value for them. Give out things for free and you might build a nice user base even if the offering is not so interesting.

Not necessarily; if you hook up people on free and have them invest time money or resources into your free by walled system, the cost of moving elsewhere overweight a small upcharge once you start charging.

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.

> After all they seem to be quite conservative on the product development side and have always had courage to charge actual money for their service.

They've always charged for higher tier services but they've also always had a free tier where they provide service without charging anything.

Pretty simple: they pay a gazillion dollars to host everyone's pictures and old resume versions, they get half a gazillion from enterprise customers storing work documents. They reduced a lot of costs by building their own data centers and getting off AWS.

For example BackBlaze sells storage at $0.005/GB [1]. I picked them as an example, because I'm fairly confident their business model is based on making money with this. Based on this I would assume that at Dropbox scale you could do storage at least for the same price, maybe even cheaper. With those prices the free user storage would cost like max 1 cent/month. There's of course some users with more than 2GB, but there's also many who use less and all the de-duplication and shared folders pushing down the per free-user cost.

[1] https://www.backblaze.com/b2/cloud-storage-pricing.html

I analyzed Backblaze's business model before. It's quite fascinating. https://twitter.com/kiyototamura/status/934558071019339776

If I had to guess, Dropbox improves their margin by getting people to share files and folders (because that counts toward multiple users' quotas).

I pay $10/mo for the storage bump. Not sure how many there are like me, but I suspect a non-trivial amount of their revenue comes from non-enterprise customers.

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