Investing in Dropbox: What to consider
With more than a decade of experience, Dropbox (DBX) is one of the world’s leading cloud file storage and sharing solutions. Going public in March 2018, the Dropbox IPO was held at a company valuation of some $8 billion, making it one of the biggest tech IPOs of that year. Pioneering many innovative practices in the online file storage industry, Dropbox stayed resilient throughout the years: Despite rising competition from tech giants such as Google and Amazon, and rivalling companies such as Box, Dropbox has stayed ahead of the curve by focusing on private users and small-medium businesses (SMBs). The company has more than 500 million users around the world and is traded on the Nasdaq exchange (NASDAQ: DBX).
Who should include DBX in their portfolios?
Long-term investors: Dropbox has shown a steady, growing revenue stream in the years before its IPO, despite reporting net losses. However, since it is a public company, it is logical that its long-term plan is to increase its stock price. Therefore, investors who believe that the DBX stock will go up in the long term can add it to their portfolio.
Tech investors: Since the DBX IPO set its valuation in the billions, investors who hold an investment portfolio which includes large-cap companies, could diversify by adding Dropbox to it.
Day traders: Like many financial assets, the DBX stock could, on occasion, show great volatility over the course of a single day. For example, often times a company’s stock can go up or down in value around the time of its quarterly earnings report. Therefore, traders can try to take advantage of this short-term volatility in an attempt to turn a profit.
Cloud computing enthusiasts: Dropbox has been a global leader in online storage for over a decade and has set many industry standards. Those who believe it will continue to be a powerful influencer in the field can include the DBX stock in their portfolios.
What drives Dropbox’s stock price?
Publicly traded tech companies are exposed to a variety of factors which can drive their share prices up or down - and Dropbox is no different. The DBX chart could turn volatile for a myriad of reasons, both internal and external, and both from a fundamental and technical standpoint. Here are some of the factors that could impact upon Dropbox’s price:
Public interest: Being fairly new to the public investors’ space, Dropbox’s success is dependent, among other things, on the allure it raises among potential investors. Therefore, the company needs to be able to generate positive headlines and produce impressive results, to increase its demand, and subsequently, its market cap.
Revenue stream and cash flow: Despite showing impressive returns of billions of dollars over the past few years, Dropbox was not profitable when it went public. However, the company has a solid business model and reported good results in average earnings per user - which is one of the reasons its market cap is in the billions. Therefore, it is likely that if the company’s bottom line shifts into the green, its stock will go up accordingly.
Competition: When Dropbox first started out, there weren’t many other companies offering similar services. However, over the years, many rivalling companies emerged, and several tech giants, such as Google and Amazon, started offering similar services. Therefore, Dropbox has to maintain its innovative, competitive edge to keep its stock attractive to investors.
Earnings reports: The first few years after a company goes public can be crucial to its long-term success. When releasing its quarterly reports, Dropbox also includes statistics such as new registered users and earnings-per-user. Therefore, these reports could have a tremendous impact on its stock price.
Dropbox: Focusing on the little guy
Dropbox did not invent the concept of storing and sharing files online. That is a practice as old as the Internet. However, what made the service so popular is the fact that, from day one, its founders focused on intuitive usability. Making file sharing as easy as copying and pasting a file, to the extent that anyone who knows how to use a computer could do it, was a revolution at the time. Over the years, Dropbox has kept ease-of-use as one of its core values. Moreover, to this day, anyone can sign up for a free account, which allows up to 2GB of file storage. It is no wonder, then, that hundreds of millions of users around the world use the service. The company’s efforts to maintain its platform’s intuitive nature, and to build its user-base on a foundation of private users around the world, are some of the main reasons for its success and could continue to fuel its growth.
History of Dropbox
Dropbox was founded in 2007 by two MIT students, Drew Houston and Arash Ferdowsi. According to Houston, the idea came to him after he repeatedly forgot to bring his USB flash drive to school, and thought there should be an easy-to-use web-based solution. The two started developing the idea for their personal use but quickly realised they had a product that could benefit many people. Soon after, they secured seed financing from top Silicon Valley startup accelerator Y Combinator and launched the first iteration of the Dropbox application in 2008. Despite similar solutions being available, the Dropbox platform, which solved latency issues and other common bugs found in similar services, became immensely popular.
Over the next few years, the company increasingly attracted new users and new investors, until reaching its peak as a startup company in 2014, when it was estimated to be worth $10 billion - more than it was worth during the DBX IPO four years later. The company acquired other companies, such as Mailbox, and created a photo-sharing app called Carousel. However, both apps no longer exist, and their features were integrated into the main Dropbox app.
Conclusion: The little storage company that could
It is not uncommon to see companies coming out with revolutionary services and apps, only to be trampled by the giants of the industry when they develop a competing product. However, through its ‘user-first’ approach and near-flawless functionality over the years, Dropbox has positioned itself shoulder-to-shoulder with some of tech’s biggest names. If the company maintains the high quality and intuitiveness of its applications and solidifies a positive revenue stream, Dropbox’s future could be very bright.
*This content is for information and educational purposes only and should not be considered investment advice or an investment recommendation.
*Past performance is not an indication of future results. Your capital is at risk.