Food for thought: Dropbox IPO filing – media reactions

On Sundays, I post about interesting content I came across during the previous week. Today I’ll look at how the media reacted to the Dropbox IPO filing.

On February 23, Dropbox, Inc. publicly filed an S-1 registration statement with the SEC to conduct an initial public offering of shares of Class A common stock. These preliminary prospectus filings generally get a solid amount of media attention, since they contain a gold mine of information about a company’s business model, financial health, culture and vision.

During my brief stint in the corporate communications and PR world, I learned that companies and their support teams pour a ton of energy into the S-1 filing. It’s the company’s biggest opportunity to publish a handcrafted narrative—an opportunity which is especially important given that quiet period rules severely limit the company’s ability to communicate after the filing. So whenever you read an S-1, you can safely bet that dozens of people sweated over every paragraph, chart and number—and those people are now extremely attuned to the reactions of the media, investors and other influential stakeholders. Did the key messages get through? Is any part of the story being misinterpreted?

To that end, one of the primary services provided by a corporate communications agency to an IPO client is continuous monitoring and analysis of media coverage. I thought it would be fun to dust off my old “coverage report” skills and see how the Dropbox filing has landed. Here’s what stood out to me…

Valuation

Valuation is perhaps the trickiest subject for the company to handle from behind the scenes. It seems like Dropbox is working to guide expectations toward a valuation of roughly $7 to $8 billion—“people familiar with the offering” went on record with the WSJ peddling that range.

The most widely discussed valuation comps include:

  • Box: A natural comp, given the similar storage offerings. Shira Ovide of Bloomberg’s Gadfly tweeted: “Hard truths for Dropbox: Box trades at 5x forward revenue. If Dropbox grows at the same rate as 2017 to $1.45B, then it’s (sic) valuation would be ~$7 billion. Not what Dropbox wants.”
  • Private funding: This comparison stings. It was widely reported that Dropbox last raised private capital in 2014 at a $10 billion valuation.
  • Atlassian: Several outlets looked at Dropbox vs. Atlassian—a company that was mentioned as a competitor several times in the S-1. Recode writes that Atlassian has a revenue of about 15x, which would mean Dropbox could be valued at over $16 billion.

As much as a “down round” IPO wouldn’t be ideal, I’m wondering if Dropbox does want to set valuation expectations comparable to Box, and not Atlassian. Otherwise, “people familiar with the offering” probably wouldn’t have been whispering the $7 to $8 billion range the WSJ.

Dual-class structure

The Class A shares being offered to the public are entitled to one vote per share, while the Class B shares held by the founders and some investors have ten votes per share. Class C shares have no voting rights.

Some outlets reported this with no comment, while others noted that there has been recent pushback from investors and the SEC against dual-class structure (WSJ), or that FTSE Russell and S&P have said most newly public companies with such structure will be left out of their indexes (NYT). The FT wrote an entire separate article on the topic, noting the “structure has enraged many corporate governance campaigners.”

Comparisons to Snap

Dropbox is a unicorn company—and unfortunately for Dropbox, nearly all articles mentioned the disappointing performance of fellow unicorn Snap, a tech company that went public last year. MarketWatch published a direct comparison, writing that Dropbox only narrowly avoids several of Snap’s IPO mistakes.

Other observations

  • Dropbox included an infographic in the first pages of its filing, taking advantage of a popular tactic that seems to pay off. The five featured stats—500M+ registered users, 180+ countries, $1.1B+ revenue, 11M+ paying users, and 400B+ pieces of content—were heavily referenced in media coverage. Barron’s even re-printed part of the infographic. Since most people aren’t going to soldier through the full ~200 page filing, there’s no downside to highlighting the most attractive and relevant numbers up front.
  • Unlike Spotify—which is shunning conventional underwriting by Wall Street banks—Dropbox has hired all the big guys, listing 12 banks in the prospectus with Goldman Sachs as the left lead.
  • No one cared about the founders’ letter (except some tweets to say that it looked a lot like a poorly-scanned PDF). The founders’ letter has become standard for tech companies since Google started the trend in 2004. Maybe it’s because Dropbox’s mission to create “a fulfilling work life” isn’t very sexy compared to Mark Zuckerberg’s plans to connect the world. The crew at Dropbox might be bummed—but maybe it’s better to get zero coverage of your letter than be known for writing something zany or bizarre.