Considering Buying Dropbox Stock? Read This First.

Debuting on Nasdaq on Friday, shares of Dropbox (NASDAQ: DBX) surged after their initial public offering. At the time of this writing, the stock is up more than 40%. Trading around $30 per share, investors are valuing Dropbox at about $12 billion, dwarfing competitor Box (NYSE: BOX), which currently has a market cap of about $3 billion.

As investors contemplate the implications of Dropbox's IPO and its soaring stock price, here's an overview of some of the company's fundamentals, as well as a look at how Dropbox compares to Box.

About Dropbox

Like Box, Dropbox specializes in providing online file storage and sharing services. However, one of the things that Dropbox management says sets it apart from competition is the company marketing its product largely through word-of-mouth advertising.

Dropbox's registered users, management explained in its S-1 filing, are its "best salespeople":

In other words, by focusing on providing meaningful value to nonpaying registered members, management believes it is essentially building a sales force that will help grow its paying members rapidly over time.

Dropbox has roughly 500 million registered users, but only 11 million users are paying.

Dropbox is growing faster than Box

Dropbox's "viral, bottom-up" approach to customer adoption is driving strong growth. In 2017, Dropbox's revenue increased 31% year over year. This is faster than Box's 27% year-over-year revenue growth in the company's fiscal 2018, which ended on Jan. 31, 2018.

Dropbox is bigger than Box

Not only is Dropbox growing faster than Box, but it also boasts much higher revenue and a much larger base of registered users.

In 2017, Dropbox's total revenue was about $1.1 billion -- more than twice Box's revenue of $506 million in fiscal 2018.

The difference in the two companies' respective sizes is even more pronounced when measured by users. Dropbox has about 500 million registered users, while Box has just 58 million registered users.

Dropbox also crushes Box when it comes to businesses using its service. Dropbox said in its S-1 filing that it has over 300,000 Dropbox Business teams. This compares to the 82,000 "paying organizations" at Box. While Dropbox measures its paying businesses in teams within an organization and Box measures its paying businesses as distinct entities, the difference in paying business customers at Dropbox versus Box is still notable.

Dropbox is losing less money than Box

With the help of Dropbox's bottom-up customer adoption strategy, which means sales and marketing account for just 28% of its revenue versus 60% of revenue for Box, the company is losing less money than Box. Dropbox lost $112 million in fiscal 2017, while Box lost $155 million in the 12 months ending Jan. 31, 2018.

Better yet, Dropbox's losses are improving rapidly. Its $112 million loss in 2017 is significantly narrower than its $210 million loss in 2016. Meanwhile, Box's loss widened from $152 million in its fiscal 2017 to $155 million in fiscal 2018.

Considering Dropbox's rapid growth and its more favorable fundamentals compared to Box, it's easy to see why investors are rewarding Dropbox with a higher valuation than its rival. But with Dropbox stock jumping so sharply on Friday, investors may want to consider whether Dropbox's valuation has gotten ahead of itself. Dropbox now has a price-to-sales ratio of about 11 -- nearly double Box's price-to-sales ratio -- and far ahead of the average price-to-sales ratio of 6.1 for peers in the infrastructure software industry.

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Daniel Sparks has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.