Dropbox Boosts Valuation Range Ahead of IPO

Cloud storage service Dropbox is preparing to go public, filing its S-1 Registration Statement last month. The company expected the offering to price at $16 to $18 last week, which would peg its total valuation at $6.3 billion to $7.1 billion.

The IPO is expected to officially price tomorrow, with trading commencing on Friday, and Dropbox has just increased the expected pricing range to $18 to $20, which translates into a total valuation of $7.9 billion to $8.8 billion. However, that's still below the $10 billion valuation that Dropbox fetched in a 2014 private funding round.

Investor demand for Dropbox shares is strong

The offering is oversubscribed, according to Reuters, meaning investor demand for Dropbox shares is currently outpacing supply. There will be 36 million shares offered through the IPO, including 26.8 million shares being sold by Dropbox and another 9.2 million shares being sold by existing shareholders. If investor demand remains robust, underwriters will have an option to purchase an additional 5.4 million shares to sell to the public.

Along with Spotify, Dropbox promises to be one of the biggest tech IPOs this year. (Technically, Spotify is going public on April 3 through a direct listing instead of a traditional IPO.) If underwriters exercise all options and the offering prices at the high end of the range, the company will end up raising a cool $644 million for itself. That would significantly bolster its war chest, as Dropbox finished 2017 with $430 million in cash and cash equivalents on the balance sheet.

It will certainly need that cash, too, as cloud storage is an intensely competitive space occupied by rich tech giants that don't need to make money on such a commoditized service. Smaller public peer Box.com has struggled for years, lagging the broader S&P 500 ever since going public in early 2015.

Dropbox is larger than Box, both in terms of registered users and paying users, as well as total revenue. Scale is incredibly important in this type of business, so Dropbox could fare better than its smaller rival. The company also has another thing going for it: a massively loyal user base that loves the service and sells the service for Dropbox via word-of-mouth advertising.

In just a couple of days, Dropbox will start a new life as a public company.

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