Dropbox, a consumer internet company that once set the record as the most highly valued tech unicorn, is heading for a stock market listing that values it at almost 30 per cent below the peak it hit four years ago.
The scale of the deflation in investors’ hopes was revealed on Monday as the online file-storage company indicated that it expected to sell shares in its initial public offering, due next week, at $16-$18 each. That would value it at between $7bn and $7.9bn, significantly below the $10bn it was judged to be worth at the time of its last private funding round, at the start of 2014.
Dropbox’s failure to live up to its once-hyped billing echoes the fate of other unicorns, or highly valued tech companies, that have found stock market investors unwilling to accept the inflated views whipped up by an over-heated private funding market. Others to suffer “down-round IPOs” — stock market listings that took a slice out of their private valuations — have included payments company Square, “big data” software company Cloudera and rival storage company Box.
Despite the deflation, Dropbox is still set to mint some sizeable new fortunes in Silicon Valley. Drew Houston, the company’s co-founder and chief executive, would be worth $1.6bn, based on the mid-point of the pricing range, while venture capital firm Sequoia, an early backer, would net $1.5bn.
Dropbox’s IPO comes a year after Snap, owner of the Snapchat messaging app, listed on the public markets in New York. The move will be closely watched as an indication of investor appetite for big Silicon Valley technology companies ahead of expected IPOs by music-streaming company Spotify and Uber, the ride-hailing app, next year.
Buoyed by a wave of private capital from US venture investors, many tech companies have chosen to stay private even after achieving double-digit valuations. This has changed as private investors become more selective and less willing to pay a big premium for innovative companies.
While down-round IPOs are seen as a sign of weakness for once high-flying tech companies, prices set at the time a company goes public are often an imprecise guide even to their short-term performance. Despite its large pricing discount two years ago, Square, valued at only $2.9bn when it went public, is now worth $20bn. By contrast, shares in Snap, which soared at the time of its IPO, have spent most of the last year languishing below their issue price.
In a sign of its wider significance as a business service, Dropbox also said it was raising $100m in a private placement of shares with Salesforce, the leading provider of online business applications. The investment also cements the close relationship between Mr Houston and Marc Benioff, the Salesforce chief, who has been a long-time supporter.
Like Snap, Dropbox will go public with multiple share classes, handing more voting rights and control to executives. The company has warned that this structure could hit its valuation because it will not be included in key stock market indices tracked by investors such as the S&P 500, Russell 200 and S&P MidCap 400.
The valuation of $7-$7.9bn includes restricted stock and options awarded to the company’s employees. Based only on shares outstanding, Dropbox would have a market capitalisation of about $6.7bn based on the mid-point of the range published on Monday.
Dropbox reported revenues of $1.1bn last year, an increase of 31 per cent on the previous year as it shifts its focus to business customers in a bid to fend off competition from Apple, Amazon, Microsoft and Google. The company claims to have more than 500m registered users in 180 countries — 11m of which pay for its file storage and syncing service.
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