$10 Billion sounds insane to me. The fundamentals just don't add up. When you consider the user base and their cost base for those users, the number makes no sense.
Consider 25 million users. Even if all 25 million were on the $9.99 plan, that would mean each user pays $119.88 a year, and you're talking a total annual revenue of $2,997,000,000. If everyone was on the $19.99 plan you're looking at annual revenues of $5,997,000,000.
Factor in the storage costs (which I'm sure they'll get a good rate for but don't have any data for) and a $10 billion valuation is simply ludicrous.
Plenty of non-startup companies trade at 20-100x P/E ratios.
Dropbox is clearly insanely profitable at only 65 employees. Especially because they are running de-duplicated storage on top of highly negotiated AWS pricing (they are likely the biggest AWS customer, and AWS certainly does custom pricing deals for big customers).
And startup P/E ratios should be higher than established companies because you are making a riskier bet for a higher potential payoff.
They could be doing $100 million in revenue (a 4% freemium conversion on their $99/yr plan at 25E6 users) and it wouldn't be crazy at all. Or any number of other configurations.
Btw- I have heard Dropbox has 20%conversion rates so scenario 3 is not that outlandish.
Another way to look at it- if you bought a stalwart tech company (Google/MS/EMC etc) at 66 PE multiple (Scenario 1) at IPO stage- you would have made money 2-3 years from then.
Question - how wide is Dropbox economic moat? Or more simply how low are Switching costs?
I have been analyzing internet companies sometime now for overvaluation and I don't Dropbox (from an outside in looking perspective) is overvalued.
I'd be amazed if Dropbox had a 50% profit (net income) margin. It's likely that their gross margin is around there, but you still have to subtract SG&A and other expenses to get down to net income.
If Dropbox pulls in $100 million in revenue this year, a $10 billion valuation is 100x revenue. That is a very high multiple.
Their storage costs are constantly coming down. I don't know what else they might be cooking up, but with 25 million happy users they could come out with a second product and up their revenue by 20 to 50% overnight. They solve this problem very, very well and are very competently managed.
I'm sorry, but a $10B valuation for Dropbox is just retarded. I haven't been to Dropbox's site in months.
I use my computer less and less each day for editing the content I create and consume for personal and work use. I'd much rather create/upload photos, prezos, docs, spreadsheets, etc. to a SaaS service like Google Docs than store and edit it locally.
Dropbox's sole value to me today is syncing my content across machines. I rarely use (if at all) their website to consume content. OTOH I use Google Aps every SINGLE day to consume and create content.
A $1B valuation I could maybe get comfortable with, but $10B is just stupid.
I disagree. Tonight I heard a 70-year old grandmother observe with surprise that her best friend of 50 years, although quite computer-savvy, had not even heard of Dropbox! When your company is capturing a mass market to the point of going viral among grandmothers, the idea that it might be worth billions is not "retarded" or "just stupid".
They've done a whole lot of hiring and not a whole lot of releasing. You've got to assume that investors are seeing/hearing something that the general public is not.
For example, Dropbox is well positioned to jump-start a significant enterprise business. Maybe they have something pretty incredible in the works?
I wouldn't necessarily count on them being that close to anything that amazing at least from a technical standpoint. I'm starting to realize that as a company gets big, it takes more and more people just to keep things going, make sure their systems don't melt down, do support, analyze all the useage data they're generating, manage the other people, etc. They're only at like 60 employees, right? That's really not many for a site with 25M users, many of whom run an agent that constantly hits their servers asking if there are updates.
Twitter's done a lot of hiring (up to ~500 people) and not a lot of releasing (last real release was ... new twitter?). Are they working on something huge and secret? No, they're keeping the site from melting down, making things more efficient so that that they site won't melt down in a few months, and making incremental improvements to the growing number of pieces of their service.
I'm sure Dropbox is working on more, but I don't think that they've made significant progress on anything earth-shattering. I'd guess that they're showing investors some very solid revenue and usage trajectories and some plans on how they're going to extract more money out of more companies in fairly obvious ways. Maybe some early prototypes of something earth-shattering.
(Cue giant release proving me totally wrong within a month)
$10B is stupid? It gets worse than that.
A $10B valuation now indicates an expectation of a $20bn future valuation.
Consider what the investors must be thinking. Take into account that investors buy "low" now to sell high later. So, if investors are willing to put money down at $10bn, then to get even a modest return (by VC/tech) standards of 2x, they expect Dropbox will be worth $20B within the next 7-10 years (the usual VC fund life).
Things are getting very loopy out there.
It depends very much at the stage of the company when the investment is made, the later the stage and the lower the risk the smaller the multiplier needs to be for a VC to invest.
If a VC might be willing to invest at a much lower multiplier if they thinks there's a good chance at an ipo in the very near future.
> Adding a sharing layer on top is something easily replicable.
Considering that Dropbox is the one company that has just "made it work", I wouldn't be so sure of that. Syncing isn't always easy and at scale the problems are that much bigger. Mix in cross platform issues (not just Mac/Windows, but mobile too) and it gets that much more interesting.
There's a subtle difference between "sharing" (which I was talking about) and "syncing." The examples in the previous comment focused on sharing (music sharing, photo sharing) and thus were really about the magic of cloud storage like S3, not anything unique added by Dropbox.
You're absolutely right that syncing is a classically hard problem that Dropbox has addressed impressively well for consumers.
I have successfully gotten family members to use two, count them, two ways to share photos, out of a dozen I suggested.
#1: Dropbox.
#2: http://www.eye.fi/ , which my mother uses to get photos on Facebook despite having no understanding of the file system metaphor.
Personally, I use Dropbox. It's super elegant in terms of the UX for my girlfriend. I take photos, drop them in my Dropbox folder, and send her an email. She makes with the clickyclicky on the magic blue bit. Bam, vacation photos. We both managed to screw things up, frequently, when I was trying to send her photos on Flickr without opening them to the entire Internet. Dropbox makes it a one-click operation for her, and I can manage drag-and-drop on most days.
Why wouldn't an ordinary person want to use it to share photos? Plug in camera, transfer images, right-click and copy the gallery link or hit share. It can't be any easier for the ordinary person.
Dropbox's GUI does need some work for presentation, which is why me and a friend built an app on top of Dropbox precisely for that: views.fm Actually just released a new slideshow feature to present photos!
Amazon recently announced their Virtual Private Clouds (http://aws.amazon.com/vpc/) for enterprises that will not keep a customer on multi-tenant infrastructure if they wish otherwise.
In any case, except for Google/Facebook-scale data and content providers, having your own datacenter for 25m users sounds premature. Many large enterprises use private clouds hosted and managed by service providers like IBM or Verizon; this makes sense when their core business is their service, not the infrastructure itself.
The recent TOS and security controversies haven't been good. Up until recently, excellent customer care has been a hallmark of YC companies. The Hellofax guys have been awesome, and incredibly responsive to feedback, as have the Parse guys. I hope when they get huge, things stay that way. It seems once these companies reach certain scale, though, other issues tend to limit this (see AirBnB). Of course customer service is an increasing challenge for all large companies, not just the ones that come from YC. But it's sad to see some of them lose their luster.
Sure DropBox is great for moving homework, but for anything where security is paramount, why take the risk? Security is one of those things that you screw up once, and X people will never forgive you. Would you trust your mission-critical files to a service that exposed them for four hours?
Call me crazy, but at the rates data costs are decreasing, it seems like Amazon could create this service as a loss leader and give it away for free. What does the future look like? Everyone paying $10 month to have data in the cloud? I doubt it.
This doesn't mean I don't adore Dropbox and recommend it to everyone I know, because I do (and I pay for it), but it seems like the reality is that this type of service must evolve very quickly in order to stay in front of the curve.
The money they are looking for ($200 million) doesn't sound like they are going to stick with their current business plan. They might going to expand somewhere else.
I have no idea how to pin a number like $10B or any other on DropBox. I will say this:
DropBox has potential to be much more than about syncing and sharing files in the cloud. If they manage to come up with a useful enough "app API", they could grow into the backbone for the myriad SaaS apps where people worry "what happens to my data when 'tiny SaaS start-up' dries up and blows away?" or maybe more appropriately "who owns my data and how do I ensure it's secure, backed up, and accessible through 'neutral, well understood, and reliable means'?".
Google, Amazon, Apple and Microsoft have all made rumblings at cloud-backed file storage recently -- Dropbox could lose a lot of paying subscribers overnight if one of these companies got a few dozen engineers to build a client on par with the Dropbox client. A $10B valuation for Dropbox is way too high. I'd sell for a couple billion now if I was in their shoes.
Not too crazy valuation. They only have 25M users, which by most web standards is not "that that" much. It is fair to say every user is worth $40.00/year. Dropbox goes mobile and becomes a default backup/sync app on Android and Iphone, add $1B. Dropbox becomes the place where I dump all my data, my own API, and lets services have access to different parts depending on settings, add $1B. Dropbox becomes mainstream and reaches 100M users, add $2B, .....
I pay, I think $10 a month? It's worth it. Many people will probably grow into paying for it. It really is a nice product. The sharing function is the killer part, not the backup. People new to it might not have discovered how easy it is to share files with it, and then your Dropbox can fill up pretty fast.
Agree that the current accounts probably aren't worth $40/each - the valuation includes the technology, brand, and growth potential of course, not just the current userbase. But a lot of people will pay. Really, sharing big files used to be a major pain point online. Dropbox makes it ridiculously easy.
Dropbox is filling a whole that Amazon and Google have failed to serve. The founders were scared of the GDrive according to their YC application. GOOG and AMZN have still failed to fill this gap however many years later. I'm guessing some of it has to do with the superb UX of Dropbox.
When will it be time to stop looking to "growth potential" as a valid reason for huge valuations? 5 years from now? 10 years from now? Seriously, when can we stop and value a company for what it is right right now, not in some dreamy future?
I love Dropbox, but I can move my data to a competing service in an afternoon. They're going to have to execute brilliantly to stay on top of this market if it's really worth that much. 10 billion puts them at 1/18th of Google.
"It is fair to say every user is worth $40.00/year"
How is it fair to say that? Is there any data that backs this up?
"Dropbox goes mobile"
They already have
"becomes a default backup/sync app on Android and iPhone"
Although this is possible, this seems like a far-fetched claim. Apple and Google already have their own backup/sync methods for their phones, it will be tough for Dropbox to become the default app.
"Dropbox becomes the place where I dump all my data, my own
API, and lets services have access to different parts depending on settings, add $1B. Dropbox becomes mainstream and reaches 100M users, add $2B, ....."
> I am a free user, but I would pay for a $5.00/month plan.
How many products have flopped because of the gap between what potential customers claimed to be willing to spend and what customers were actually willing to spend?
Huh? Why $40/year? A $10B valuation means that investors value the current 25M users $400 each, or potentially 100M future users $100 each, etc. You get the idea.
That's not what it means. Look into P/E ratios (especially when they're calculated by dividing market cap by annual earnings). A P/E of 10-17 is normal.
You're assuming that market cap is based on yearly earnings, which is simply wrong.
Consider 25 million users. Even if all 25 million were on the $9.99 plan, that would mean each user pays $119.88 a year, and you're talking a total annual revenue of $2,997,000,000. If everyone was on the $19.99 plan you're looking at annual revenues of $5,997,000,000.
Factor in the storage costs (which I'm sure they'll get a good rate for but don't have any data for) and a $10 billion valuation is simply ludicrous.
The numbers just don't stack up.