

Dropbox close to choosing investors — Round could put valuation at $10 Billion - canistr
http://techcrunch.com/2011/08/05/dropbox-10-billion/

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iuguy
$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.

The numbers just don't stack up.

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nrao123
Your Scenario: (25M * 100% paying* $120/customer * 50% margin)/$10BN= <10 PE
Ratio An extremely good deal by any measure.

Alternate Scenario 1: (25M * 10% paying* $120/customer * 50% margin)/$10BN=66
PE

Alternate Scenario 2: (25M * 10% paying* $200/customer * 50% margin)/$10BN=40
PE

Alternate Scenario 3: (25M * 20% paying* $200/customer * 50% margin)/$10BN=20
PE

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.

~~~
kcg
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.

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kordless
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.

~~~
snprbob86
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?

~~~
jackowayed
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)

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illeto
$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.

~~~
ig1
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.

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jayzee
Doesn't dropbox essentially have infinite potential?

Pictures folders shared with your contacts and you have flickr etc. A shared
music folder and spotify/grooveshark etc?

Basically an infrastructure company in the most elemental and violently grand
sense of the word?

~~~
Hisoka
Umm... An ordinary GUI with folders to share pictures is not Flickr. No
photographer, or ordinary person will want to use that to share photos...

~~~
patio11
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.

~~~
matthewcieplak
If you're trying to share galleries on dropbox but not to the whole internet,
you should try views.fm: <http://www.views.fm>

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badclient
Dropbox should be building their own data centers. At their scale, relying on
amazon sounds like a bad longterm strategic move.

~~~
oakenshield
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.

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adelevie
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?

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nhangen
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.

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csomar
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.

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jhancock
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'?".

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cyrus_
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.

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phutwo
Here is a guess of where they're going: instead of iCloud, it'll be
dropboxCloud.

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rokhayakebe
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, .....

~~~
magic5227
Um, how is this fair to say? "It is fair to say every user is worth
$40.00/year."

Seems like a very unlikely assumption. I know plenty of people who use the
service, none are paying, where does the $40 come from?

~~~
lionhearted
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.

~~~
Hisoka
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?

~~~
shahan
It will be time to stop looking to growth potential as a valid reason for huge
valuations, when it seizes to be a perfectly valid reason.

All else being equal, wouldn't you pay more for a company with high growth
potential than one with low growth potential?

